The document summarizes news from the Business Council of Mongolia newsletter. It discusses progress in negotiations for the Oyu Tolgoi and Tavan Tolgoi mining deposits. Investment banks like Deutsche Bank and JP Morgan may help the government sell part of Tavan Tolgoi, estimated to be worth $1-2 billion. The government will own at least 51% of Tavan Tolgoi. NGOs are seeking more transparency in the negotiations. Banks proposed measures to the central bank like government-guaranteed mortgages to restart the housing market and stimulate the economy.

1. BUSINESS COUNCIL of MONGOLIA
NewsWire
www.bcmmongolia.org
info@bcmmongolia.org
Issue 54, January 23, 2009
NEWS HIGHLIGHTS:
Business: Progress reported in Oyu Tolgoi negotiations; Investment banks to help sell Tavan
Tolgoi stake; Special session of Parliament to discuss mining agreements likely; NGO
coalition seeks information on mining negotiations; China ready to invest in Mongolian
mining; Study urges repeal of WPT, end to public equity in mines; Banks suggest
lifelines; Company to buy mortgages from Capitron Bank; Trade and Development
Bank giving loans for new apartments; MPs find no wrongdoing by Anod Bank directors
who stood for election; Oil importers were fined in September for unfair trading;
Business regulatory recommendations submitted by IFC; Official hopes work on
privatizing MIAT will start soon; Trading and MSE indexes fall; Manufacturers ask for
cheaper electricity at night; FIFTA plans meetings in Singapore, India.
Economy: Fitch lowers Mongolia rating, keeps outlook negative; Mongolia eyes benchmark-sized
global bond sale; Prices rise 22% in last 12 months; MNT deposits fall, while those in
foreign currency go up; Bankers’ delegation explores arrangements in China; Year
ends with budget deficit equaling 5% of GDP; Prime Minister and Central Bank
President exchange views; Mongolia expects economic success with minerals policy;
New fuel tax fixed in MNT, and not USD as now; Fewer registered as unemployed;
16,000 foreigners allowed to work in Mongolia; Mongolians in South Korea have less
money to send home; Won winning against Tugrug; Milk prices rise steeply.
Politics: Presidential poll on May 24; Bayar calls Putin before Irkutsk meeting; Agenda for next
session of Parliament; Fewer forgeries and muggings, but rise in fraud and robbery;
More children using drugs; Crimes fall as alcohol prices rise; Amnesty International
calls for thorough and impartial probe; Fewer applications for passports in 2008; The
desert spreads, causing alarm; No Air China flights from January 25 to 31.
NOTICE TO BCM MEMBERS
The first 2009 BCM monthly meeting for Members will be Monday, January 26 at 5 PM at the Open
Society Forum. Featured will be a presentation by Mr. V. Otgondemberel, Chairman, Ulaanbaatar
Railway Company – “CURRENT UPDATE AND PLANS FOR THE MONGOLIAN RAILWAY”.
Mr. Barrie Evans, Managing Director of Churchill‟s and Head of the newly formed BCM Food & Drink
Working Group, will overview international food industry safety standards. An overview of BCM‟s
joint project with the Ministry of Education, Culture and Science to develop the interest of mining
companies in two vocational training schools (Nalaikh district and Gobisumber province) will be
presented by Mr. Jim Dwyer, Executive Director of BCM.
Teleconferencing will again be available for Members not able to attend in person. Call number is
(1-218) 936-7979, access code 771358 to be connected. Cost will be solely that of the long distance
call to the above US number. Members who plan to attend the meeting in person or via
teleconferencing with questions on these presentations should Email them in advance to
info@bcmmongolia.org.
ECONOMY
PROGRESS REPORTED IN OYU TOLGOI NEGOTIATIONS
The working group set up on December 11 by the Prime Minister to prepare the agreements for

2. investment in the Oyu Tolgoi and Tavan Tolgoi deposits has been busy. On Oyu Tolgoi it has been
regularly meeting with representatives of Rio Tinto and Ivanhoe Mines to iron out differences.
Sources preferring to be unidentified confirm that agreement has been reached on some major
points but remains elusive on some others. For the moment, the Mongolian Government wants to
own 34% of the deposit and the investors are ready to accept this. However, they will not agree to
the Government raising its ownership share to 50% once the initial investment costs have been
reimbursed. They are also firmly against the continuation of the windfall profits tax. The Mongolian
demand for advance payment of some taxes is acceptable to the investors in principle and on
certain conditions. However, details are still to be worked out. Talks will continue to find a
common ground.
The working group is still studying the details of the several proposals that have been submitted for
Tavan Tolgoi. Among those who have expressed interest are a Korean consortium of 11 companies,
a Russian consortium of 3 companies, Peabody Energy of the USA, Shinhua of China, Mitsui, Itochu,
and Sojits of Japan, Jindal Steel and Power of India, and Vale of Brazil.
Recognizing the need for assistance from professional consultants in assessing the proposals and
also in holding negotiations, the working group approached 10 internationally recognized
investment banking and/or consultancy companies. Five of them – Boston Consulting, Deutsche
Bank, Goldman Sachs, JP Morgan, and Macquarie Group – expressed interest and Deutsche Bank,
Goldman Sachs, and JP Morgan were the front runners on the basis of criteria set by the
Government. Latest indications are that Deutsche Bank and JP Morgan, individually or together, will
be chosen for the job.
The working group is to submit a report on all it has done so far to the Government at its next
meeting.
Source: Ardiin Erkh, Udriin Soniin
INVESTMENT BANKS HELP SELL TAVAN TOLGOI STAKE
Mongolia's government will soon hire investment banks to sell a minority ownership stake of a
massive coal mine valued at around USD2 billion in a historic deal that could bring a windfall to the
sleepy country of windswept grasslands. While some mining companies may be starving for access
to such a large deposit, several obstacles remain, including lack of transparency and stability in
Mongolia's mining laws. Tavan Tolgoi, often called the world's biggest untapped coking coal deposit,
holds a coal reserve of 6.5 billion tons in the landlocked country's Gobi desert. The Government,
which is aiming to pull Mongolia out of poverty with its uranium, lead, zinc, copper, gold, and coal
deposits, will own not less than 51 percent of Tavan Tolgoi. It aims to offload up to 49 percent to a
global mining giant. JPMorgan and Citigroup are among the banks in the running for the mandate,
but the Government may also choose multiple banks to run the auction.
Media reports have named a range of potential bidders such as Chinese coal giant China Shenhua
Energy, Japan's Itochu Corporation, Peabody, and world Number 1 miner BHP Billiton. A deal for the
asset is not without its hurdles, however. Analysts say uncertainties cloud what could be good
timing and strong prospects for mining firms on the hunt for Mongolia's untapped assets. "The
prospectivity of the geology relative to the amount of exploration work that the country has
undergone makes it a hugely exciting prospect as a new frontier for global mining companies," said
Mr. Andrew Driscoll, head of resources research at CLSA. "It's really the lack of stability in the
government and in the mineral laws which detracts fairly significantly from that natural
prospectivity."
BHP originally won the right to develop Tavan Tolgoi in the 1990s, but found it to be uneconomical
at the time and returned the license. The successful sale of Tavan Tolgoi -- which means "five
heads" because of the contours of the site's hilly landscape -- could hand Mongolia between USD1-
USD2 billion, plus ongoing revenues from its majority stake in the mine. "It's a fairly shallow deposit
and therefore the costs and the profitability are very good, so what appears to be a large-scale and
quality coking and thermal coal asset is something that a wide range of suitors would want to
acquire," Mr. Driscoll said.
But since the discovery of copper and gold deposit Oyu Tolgoi -- a joint project between Canada's
Ivanhoe Mines and Rio Tinto -- in 2001, Mongolia's laws have gone from being among the most
attractive in the world for foreign miners to increasingly protectionist. The 2006 version of the law
allowed the state a share of up to 34 percent of deposits found with private funds and up to 50

3. percent of those discovered with state funds. Mongolia has since delayed revising its contentious
minerals law.
Ivanhoe and Rio say Oyu Tolgoi could raise Mongolia's GDP -- roughly USD4 billion in 2008 -- by more
than a third, and a mining boom could create huge wealth for a country of less than 3 million
people, many of whom are nomadic herders.
Source: reuters.com
SPECIAL SESSION OF PARLIAMENT TO DISCUSS MINING AGREEMENTS LIKELY
The Autumn session of Parliament ended on Friday, after sitting until 11 p.m. to clear the agenda.
The Spring session would begin in April but Speaker D. Demberel asked members to be ready for a
special session likely to be called before that to discuss the mining investment agreements. The
head of the MPRP group in Parliament, Mr. D.Lundeejantsan, has said he expects the first version of
the investment agreement on the Oyu Tolgoi and Tavan Tolgoi deposits to be ready by February 10.
Source: en.News.mn
NGO COALITION SEEKS INFORMATION ON MINING NEGOTIATIONS
In an effort to ensure that the negotiation process in the ensuing investment agreements with
potential investors in strategic deposits at Oyu Tolgoi and Tavan Tolgoi is transparent, and that the
interests of Mongolian civil society and public are adequately protected, Publish What You Pay, an
international coalition of NGOs for transparency in extractive industries with local branches, has
addressed some questions to Prime Minister S. Bayar and the three ministers responsible for
drafting and negotiating the agreements -- Minister of Minerals and Energy D. Zorigt, Minister of
Finance S. Bayartsogt, and Minister of the Environment L. Gansukh.
Among the questions are:
1. Which are the companies that the Government is negotiating with?
2. Who is representing the Mongolian side in the negotiations, and is any civil society representative
included in the process?
3. Which are the foreign companies selected to advise the Government, and what are the
conditions under which they have been selected?
4. Were the reserves at Oyu Tolgoi and Tavan Tolgoi certified by the Specialized Minerals Council of
Mongolia? What is the size of the approved reserves?
5. Would the money claimed to be required to develop the project be audited? Have the
exploration costs claimed to have been invested so far been audited?
6. What would Mongolia give up if the prepayment of certain taxes and payments is agreed upon?
7. When will the Mongolian public be able to see the draft agreements, in the spirit of transparency
mandated by Parliament?
The coalition has said it will decide on its next course of action once the answers to these questions
are received.
Source: www.publishwhatyoupay.org
CHINA READY TO INVEST IN MONGOLIAN MINING
Professor Wang Yi Min worked in Ulaanbaatar for many years as a correspondent for Xinhua, the
press agency, and is now known as a specialist in Mongolian affairs. Some years ago he presented a
report urging joint Mongolian-Chinese efforts to discover and develop Mongolian mining reserves as
a driving force in the two countries‟ economic and trade cooperation in the 21st century.
Reiterating his case for such joint efforts, he recently said that events have confirmed that
implementation of democratic and transparent policies in Mongolia is essential to use its mineral
resources to economic advantage. Citing an official Mongolian report, he says the mining sector
provides 20 percent of the country‟s gross domestic product, 65.5 percent of its industrial output,
78.8 percent of exports, besides providing jobs to over 30,000 people.
It is thus not difficult to see, he said, that optimal utilization of its mineral resources will
contribute vitally to improving the nation's living standards and economic growth. Extensive
investment in the mining sector, as opposed to manufacturing consumer goods for export, thus has

4. more potential. The Chinese side is ready for this and has enough specialist workers to be sent to
Mongolia to work in accordance with laws and regulations. The Mongolian side's responsibility is to
address the disorganized situation that has arisen in its mining sector where, for instance, too many
licenses had been granted to generate bribery, a situation that has adversely affected Mongolia's
business ethics and the trust of foreign investors.
Source: The Mongol Messenger
STUDY URGES REPEAL OF WPT, END TO PUBLIC EQUITY IN MINES
The results of a study on the effects of Mongolia's tax regulation policy on the mining sector were
presented Tuesday to Prime Minister S. Bayar by Sonecon Chairman Robert J. Shapiro. The study,
sponsored by World Growth, focused on the impact of the current Mongolian tax regime on mining
projects ready for implementation, and on the most efficient policy in economic terms for the
optimal growth of the mining industry. Mr. Bayar thanked Mr. Shapiro for the work and for his
recommendations at a time when the Government and Parliament are busy formulating the draft
investment agreements on the Tavan Tolgoi and Oyu Tolgoi deposits.
World Growth Mongolia is a non-profit, non-governmental organization established “to promote
sound policies to address Mongolia‟s economic challenges”. It lists its five core principles as
economic freedom, good governance, rule and stability of law, property rights, and environmental
interdependence. The study, published as Taxation and Mining in Mongolia, puts forth a clear set of
policy solutions “to ensure that Mongolia attracts the world‟s very best investors while expanding
Mongolia‟s tax base to ensure Mongolia‟s treasury experiences a higher and more reliable revenue
stream”. After a careful examination of Mongolia‟s current taxation policies it concludes that the
Windfall Profits Tax on gold and copper has severely damaged Mongolia‟s economy and recommends
that this tax be immediately replaced with a sensible alternative.
Other recommendations in the report include:
* Elimination of the provision for public equity in „strategic‟ mineral deposits;
* Reduction of the mining royalty for both copper and gold to no more than 4 percent of the Net
Smelter Return;
* Implementation of a corporate income tax rate of no more than the existing 25 percent; and
* Provision for an unlimited ability for corporate taxpayers to carry-forward income tax losses to
future tax years.
Source: Montsame, www.worldgrowth.mn
BANKS SUGGEST LIFELINES
Commercial banks, looking for ways out of the present crisis, have submitted to the Central bank a
slew of proposals that they hope would rejuvenate the financial sector. They have told the Central
Bank President L. Purevdorj that they have to work together to stave off the crisis. Mr. Purevdorj
has expressed his support in principle to the demands, but wants time to examine them in detail
and to take expert professional advice before deciding on a course of action.
One of the proposals relates to finding a way to resume grant of long-term apartment loans. Since
this was stopped quite some time ago, banks have restricted giving credit only to construction
projects that are nearing completion. There continues to be a huge demand for individual home
loans which is not being met. The bankers propose that the Government guarantees them
repayment of loans, with the Mongolian Ipotec Corporation involved in the process. Once long-term
apartment loans start flowing, construction companies will be able to continue their operations,
giving a kickstart to the moribund economy. The banks also want some immediate help from the
Government so that they can put up more ATMs and thus cut expenses in the long term.
Senior officials of some banks talked about their proposals:
Executive Director of Capitron Bank, T. Munkhsaikhan: Banks cannot survive without giving
credit. The demand for fresh credit will increase in March, and if banks get access to funds, they
can be back in business, and generate their own means to repay their loans. If the Government
guarantees the mortgage/loans, that money will end up as much-needed capital for the
construction companies and revive the economy.
Executive Director of Khas Bank, M. Bold: It is crucial to maintain the stability of the Tugrug.
Banks that gave dollar loans will face difficulties in getting back their money as creditors might not

5. find it easy to get hold of that much extra money. In 1996, banks faced a huge problem when the
Tugrug fell a record 40 percent against the USD. We want all trade transactions to be in the local
currency, and regret that the Government itself violates this legal injunction by insisting that
customs levies are paid in USD. We have asked for total control of the currency exchange business,
including overseeing the activity of private traders. We also want some incentive to motivate
people to bring back the money they have deposited in banks abroad. It will not be easy to stop the
large-scale transfer of Mongolian money to foreign countries, but the means have to be found. We
wish the Government would take us into confidence. It must accept that banks have the potential
to earn money for the country. All we ask for is an initial boost.
Executive Director of Zoos Bank, Sh. Chudanjii: Loan repayments have slowed down not because
people wish to default. Borrowers are having temporary but real problems because of inflation and
the change in currency value. It is a matter of giving them more time. Rules at present allow only
one extension of a loan period. We want the freedom to extend the pay-back period more often, to
suit the changing needs of both lender and borrower. Why can‟t we be more flexible with loans
which are being paid back, even if more slowly than originally agreed?
Executive Director of Mongol Shuudan Bank, D. Oyunjargal: Twenty percent of all bank loans go
to the construction sector. At one time banks had advanced MNT200 billion to it. If the Mongolian
Ipotec Corporation buys the construction loan packages and collect the money from the final buyer,
it would reactivate the entire process. We hear that an insurance company in China wants to lend
the Central Bank USD100 million, and the final agreement is being delayed because of differences
over the payback schedule.
Vice Director of UB City Bank, O. Banzragch: We need to cut costs. We can save USD7-8 million if
we have common ATMs to dispense cash instead of each Bank having its own network.
First Vice Director of Golomt Bank, G. Ganbold: Non-registered financial institutions who hold
foreign funds are giving loans. Do they pay tax? Such loans given from outside the system trigger
unequal competition. We also need to revise the way the loan registration fund works at present.
Vice Director of Chinggis Khaan Bank, Ch. Saintsogt: We need things to work at a quicker pace.
For example, the Government announced weeks ago it would place funds in commercial banks, but
we have received nothing so far. Mongolian businesses are seasonal, and money should be handy
when there is demand for it. Gold miners will need money to resume work in spring, so will
construction companies as soon as winter is over. Thus the Government should hurry for us to be
prepared in time.
Source: Ardiin Erkh
COMPANY TO BUY MORTGAGES FROM CAPITRON BANK
According to a recently signed agreement, the Mongolian Mortgage Corporation will purchase
MNT556 million worth of mortgages from Capitron Bank which will then grant long-term loans at low
interest rates to citizens. In turn, the Corporation will use the mortgages to issue securities and
trade them to both domestic and foreign investors.
The cooperation of the two organizations opens up an opportunity to develop the second mortgage
market in Mongolia and put mortgage credits into economic circulation.
Source: Montsame
TRADE AND DEVELOPMENT BANK GIVING LOANS FOR NEW APARTMENTS
Trade and Development Bank (TDB) is ready to provide loans from MNT30-150 million to those who
buy apartments from selected builders like Puma Construction, Avzaga Trade, Jiguur Grand, Max
and Gangar. TDB also provides loans ranging from MNT1-50 million and carrying 1.7% interest for
interior decoration and furnishing, the only requirement being that the borrowers have to deposit
25% of the loan amount. Khan Bank and Khas Bank also give small loans on household items and
home appliances.
Source: business-mongolia.com, Undesnii shuudan

6. MPs FIND NO WRONGDOING BY ANOD BANK DIRECTORS WHO STOOD FOR ELECTION
Of the three senior Anod Bank functionaries now in police custody as investigations continue into
their possible criminal acts, two were candidates in the last parliamentary election in June. Mr. E.
Gur-Aranz, Chairman of the Board of Directors, was an independent candidate while Mr. N. Davaa,
Member of the Board, was nominated by the Civil Movement Party. There have been rumors that
Mr. Gur-Aranz spent some MNT1 billion and Mr. Davaa around MNT300 million on their respective
campaigns. Anod Bank has been alleged to have announced an IPO at the Mongolian Stock
Exchange, so that the two could lay hands on money to pay for the election expenses. However,
the Standing Committee on the Economy and the Financial Regulatory Committee investigated the
allegations and concluded everything had been done according to law. Anod Bank has 1,263
shareholders at the moment.
Source: business-mongolia.com
OIL IMPORTERS WERE FINED IN SEPTEMBER FOR UNFAIR TRADING
The Head of the Unfair Competition Regulatory Office D. Mandakh, told Parliament‟s Standing
Committee on the Budget on Tuesday that four of the six main oil importing companies – NIC,
Petrovis, Shunkhlai, and Sod Mongol – had acted illegally in raising prices on the same day after
mutual consultation. They were fined last September MNT250,000 each, the maximum possible. MP
L. Gantumur intervened at this point to say that as of now the companies make MNT342 from each
liter of AI-92 and MNT394 from A-80 petrol. He considered 30 percent profit “too much” and asked
Mr. Mandakh why his office could not go beyond just imposing the fine. “Why did you not charge
them with conspiracy against the people? Why did you not cancel their license?” he asked.
Not satisfied with the official‟s answer, Gantumur reminded him that Parliament has empowered
the Government to take over certain rights of traders in the interest of fair practice and this power
should be used. “Aren‟t the companies making fun of you?” he asked, and added, “We have a
situation where importers make money as there is no control, and soon the Government will make
money from a new tax. The poor citizen is the victim in either case.”
Source: en.News.mn
BUSINESS REGULATORY RECOMMENDATIONS SUBMITTED BY IFC
Officials of the International Finance Corporation (IFC) have submitted to First Vice Premier N.
Altankhuyag a framework to enable the Government to oversee business practices. The
Government last year sought the help of international organizations to put in place a regulatory
system that would facilitate enforcement of proper business practices. IFC accepted the
assignment, held several meetings with representatives of both the Government and the private
sector, conducted its own surveys and studies, and then prepared its recommendations. "To
achieve the desired results, Mongolia should make broad changes in its current methods of control
and inspection, in its legal environment, and in the media," the company‟s representatives have
said.
Source: Montsame
OFFICIAL HOPES WORK ON PRIVATIZING MIAT WILL START SOON
Mr. Ts. Nanzaddorj, head of the regulation and privatization unit of the State Property Committee
(SPC), has explained the lack of progress on the expected privatization of MIAT and Mongolian
Telecom. The process can start only after Parliament approves and sets out guidelines, and he
hopes the matter will be taken up in the Spring session. An added problem with MIAT is that the
National Security Council has also to agree to its privatization. Regarding Mongolian Telecom he felt
its market value would increase when it acquired the right to be a cell phone operator.
Asked about the MNT14 billion that was found to have “disappeared” from the Savings Bank when it
was privatized, Mr. Nanzaddorj said this was “a very difficult issue”. A court of law has ordered the
SPC to restore the full amount to the bank. It has been determined that the money was stolen by
Mr. Ts. Chimedtseren whose assets, however, have been valued at just MNT800 million. SPC does
not have the resources to pay for the remaining part of the restitution and has asked the Finance
Ministry to revise the budget and include an allocation for the required amount from there.

7. Talking about the Asgat deposit, he expressed the fear that it would stay in limbo for maybe 15
years. The Russian company Polimetal lost interest as the world price of silver dropped to one-third
of the peak level, and there has been no fresh offer. Developing a raw deposit like Asgat requires a
large initial investment in exploration and technology. Another worry for a potential investor, he
said, is that Mongolians have allowed the issue to become “too politicized”.
Source: en.News.mn
TRADING AND MSE INDEXES FALL
The Mongolian Stock Exchange (MSE) reports that there were 23 trading days in December on which
2.4 million shares were traded, with the volume of transactions reaching MNT740.4 million. The
figures mark a 61.6 percent and 37.5 percent decrease respectively from November of 2008.
However the December 2007 figures were 8.5 times and 22.2 times more.
In December the MSE „Top-20‟ index fell 623.7 points from November, while total market
capitalization of listed companies dropped 8.3 percent.
Source: Montsame
MANUFACTURERS ASK FOR CHEAPER ELECTRICITY AT NIGHT
Mongolian manufacturers complain that their electricity costs are prohibitive. The rate for factories
is MNT140/kw, and it appears to be a common practice for manufacturing units to try underhand
means, like fiddling with the meter or coming to an understanding with the electricity inspectors,
so that they can get away with paying less. They have now mooted a proposal to charge lower rates
for consumption during the night hours. This will allow small and medium enterprises to save on
their production costs. Taking the load away from the peak daylight hours will also help in more
efficient generation and distribution.
Source: Ardiin Erkh
FIFTA PLANS MEETINGS IN SINGAPORE, INDIA
As part of a plan to introduce the Mongolian market to new regions and to establish wider business
relations, the Foreign Investments and Foreign Trade Agency will host a Mongolian-Singaporean
business meeting in Singapore on February 12, 2009, and follow this up with a similar meeting in
India on February 16-17. The focus in Singapore will be on information technology, the food
industry, banking and financial services, light industry, and tourism. The second meeting will cover
pharmaceutical and medical equipment production, information technology, tourism, and jewelry
trading.
Source: Montsame
ECONOMY
FITCH LOWERS MONGOLIA RATING, KEEPS OUTLOOK NEGATIVE
Fitch Ratings has cut Mongolia's sovereign rating from B-plus to B, five levels below investment
grade, blaming a decline in its external finances, the diminished ability of the Central Bank to
manage the exchange rate, and weaknesses in the banking system. While cutting the rating by one
notch, it retained a negative outlook. Fitch said the currency had weakened sharply and forecast
the need for external financing. In addition, it said Mongolia had problems in maintaining economic
policy continuity. "The recent unexpected resignations of the president of the Bank of Mongolia and
the head of the Financial Regulatory Committee have escalated uncertainty, with respect to
banking and financial supervision and policy implementation," it said.
Fitch said such disruptions reduced the chances of a controlled, policy-induced stabilization of
Mongolia's external financial position. Although the nation's foreign exchange reserves stabilized in
December, the level was "only USD637 million, after five months of sizeable declines". The official
exchange rate for the MNT has depreciated by nearly a fifth to 1,385 against the USD in the last
three months, after a few years of steadily trading around 1,100 to the dollar. Black-market rates

8. of about 1,500 to the dollar, by some estimates, reflect an even greater depreciation. Fitch also
forecasts further weakness in the exchange rate and feels that the country will need to rely on
external financing support from bilateral or multilateral sources or both. Last week, a top official
was authorized by the Government to initiate talks with China over a USD3 billion loan, a significant
amount given the size of the Mongolian economy. The World Bank said gross domestic product was
almost USD4 billion in 2007.
Sandwiched between Russia and China, Mongolia is generally wary of becoming too dependent on
either.
Although the country holds very little external debt, keeping it somewhat insulated from the global
financial crisis, it is extremely dependent upon exports of commodities such as coal, copper and
cashmere, whose prices have plummeted. The fall in commodity prices has pushed the Government
budget into deficit. Fitch also noted "serious problems in the banking sector" by citing the Bank of
Mongolia's taking over the management of Anod Bank, one of Mongolia's five largest banks, in
December 2008.
Source: Reuters.com
MONGOLIA EYES BENCHMARK-SIZED GLOBAL BOND SALE
Mongolia is looking to sell its first-ever sovereign global bond and has already asked investment
banks to submit pitches to manage the benchmark-sized sale, according to two sources familiar
with the plans. Invited banks submitted proposals at the end of last year, but have yet to hear who
has been selected as underwriters, according to these sources. They declined to be identified due
to the sensitivity of the matter. "I have no idea where they are at the moment," said an investment
banker that has submitted a proposal. "There was a bidding, we were involved, no decision has
been made," he added.
A benchmark offering typically involves amounts of at least USD500 million. The interest in a debt
offering comes amid a revival in Asian global bond issuance after several months of almost no
activity. Mongolia has long been speculated as interested in tapping overseas debt investors, but
any bond sale could be made more difficult after Fitch Ratings on Monday cut the country's
sovereign rating by one notch to B, or five levels below investment grade.
Trade and Development Bank of Mongolia remains the only issuer from the country to hold USD-
denominated offshore debt, after an inaugural USD75 million sale of three-year bonds in 2007.
TDBM tried to tap overseas investors again in June last year for a USD100 million issuance, but
failed to complete the sale as debt markets remained shut for high-yield issuers. Debt markets still
remain open only for sovereign or high-grade issuers.
Source: Reuters.com
PRICES RISE 22% IN LAST 12 MONTHS
Consumer prices rose 22.1% in the 12 months from December 2007. They rose 0.04% from November
to December 2008. The yoy increase was 3.6 times higher than the six percent goal set by the Main
Guidelines of Socio-Economic Development of Mongolia for 2008. A sector-wise breakdown for 2008
shows the cost of education rose 39%; of restaurants and hotels 31.4%; of medical goods and care
27.0%; of transportation 25.8%; of foodstuff 24.0%; of housing, water, electricity and fuel 22.6%; of
clothing and footwear 16.5%; of household furnishings and goods 15.4%; of miscellaneous goods and
services 14.6%; of alcoholic beverages and tobacco 12.4%; and of recreation and cultural
entertainment 9.7%. Communication costs fell by 3.0%.
Looked at from another way, 10.2 percent of the 22.1 percent increase came from higher food
prices; while 2.4 percent was contributed by housing, water, electricity and fuel; another 2.4 point
by transport; 2.3 percent by clothes and footwear; and 2.2 percent by education.
The annual average Consumer Price Index growth for 2008 was 28 percent, the highest growth over
the last decade.
Source: The National Statistics Office
MNT DEPOSITS FALL, WHILE THOSE IN FOREIGN CURRENCY GO UP
The Bank of Mongolia reports that at the end of December money supply (broad money or M2)

9. increased by 4.4 percent or MNT99.6 billion over November 2008, reaching MNT2,341.4 billion.
However, this was 2.5 percent or MNT59.9 billion less than in December 2007.
The end of December saw currency issued in circulation increase by 23.0 percent or MNT76.3 billion
compared to November 2008, reaching MNT407.2 billion, a rise of 11.8 percent or MNT43.1 billion
compared to December 2007. At MNT944 billion, domestic currency deposits fell by 6.7 percent or
MNT67.9 billion from November, and by 15.2 percent or MNT169.6 billion compared to December
2007. Foreign currency deposits increased 12.5 percent or MNT50.4 billion over November 2008, and
by 20.4 percent or MNT76.8 billion compared to December 2007.
Outstanding loans went up by 28.2 percent, reaching MNT2,635.6 billion. Of these 20.9 percent
were individual loans, 34.7 percent were to the private sector, 27.3 percent to the public sector,
and 20.6 percent to other financial corporations.
Principal in arrear increased by 2.3 times or MNT53 billion, while substandard and doubtful loans
increased by 2.8 times or MNT120.6 billion. Nonperforming assets reached MNT188.7 billion, which
was 7.2 percent of the total loans outstanding and an increase by 3.85 percent compared to
December 2007. Reserves at the end of November 2008 were USD606.3 million, equivalent to what
is needed to pay for imports in 8.7 weeks. This was a decrease of 39.8 percent from November
2007.
The nominal rate of MNT against EUR was 1786.75 at the end of December, showing a fall of 4.1
percent since December 2007, but 18.3 percent weaker than in November 2008. The nominal rate
of MNT against CNY was 185.25 when December ended, weaker by 15.7 percent since December
2007, and by 8.1 percent since November 2008.
Source: www.mongolbank.mn
BANKERS’ DELEGATION EXPLORES ARRANGEMENTS IN CHINA
A delegation of Mongolian bankers led by the vice president of the Central Bank, Ms. D. Enkhjargal,
was in China earlier this month to hold high-level talks on upgrading bilateral ties in the banking
sector and on improving procedures of Mongolia‟s foreign trading. Among the proposals considered
was a three-year agreement on a yuan/tugrug swap arrangement for USD750,000 at least twice a
year. Another was a Mongolian request that the money in accounts held by Mongolian companies
and banks in Chinese banks be paid in US dollars, up to a maximum of USED700 million in 2009.
Since the deposits are in yuan, Chinese commercial banks cannot make the interest payment in US
dollars without authorization from the Central Bank. The two countries‟ central banks will now take
up the issue.
The Central Bank of China some time ago announced steps it had taken to make access to their
money easier for Mongolian companies. Banks in Erlian city have been asked to increase fourfold
the cash Mongolians can withdraw. More yuan will also be allowed to be brought into Mongolia.
Source: Ardiin Erkh, Montsame
YEAR ENDS WITH BUDGET DEFICIT EQUALING 5% OF GDP
Preliminary results reveal that the General Government budget ended 2008 with an overall deficit
of MNT305.7 billion. The total share of revenue and grants was 35.2 percent, and of expenditure
and net lending 40.2 percent. The deficit amounted to 5 percent of the GDP. The current revenue
totaled MNT 2,136.1 billion, and current expenditure MNT1,749.5 billion, resulting in a surplus of
MNT386.6 billion or 6.3 percent of the GDP.
Total tax revenue increased by 25.7 percent over 2007. Revenue from taxes on foreign trade rose
by 47.2 percent, from excise tax by 33.4 percent, and from value added tax by 33.9 percent.
Capital expenditure was 25.4 percent of the total expenditure and net lending, an increase of 8.2
percent over 2007. The shares of current expenditure and net lending in the total expenditure and
net lending amounted to 71.1 percent and 3.6 percent respectively, decreasing by 7.2 points and
1.0 points in that order, compared to 2007. Capital expenditure was 10.2 percent of the GDP, a rise
of 3.7 percent over 2007.
Source: www.nso.mn

10. PRIME MINISTER AND CENTRAL BANK PRESIDENT EXCHANGE VIEWS
At their first formal meeting last week both Prime Minister S. Bayar and the newly appointed
Central Bank President L. Purevdorj stressed the need for cohesion, and to ensure that the
Government and the Bank pursued complementary policies in these times of crisis in the financial
and banking sector as well as in the national economy. The two talked about various solutions to
the problems at Anod Bank, the road map the Central Bank should draw for the commercial banks,
and about easing the liquidity crunch.
Source: business-mongolia.com
MONGOLIA EXPECTS ECONOMIC SUCCESS WITH MINERALS POLICY
In southern Mongolia, a large mine in Oyu Tolgoi is believed to have copper reserves worth about
USD170 billion and a coal mine in Tavan Tolgoi has reserves of more than 6.4 billion tons. Both are
awaiting exploitation. With many mines like these, the country is hoping for rapid economic growth
using its mineral resources. Despite the dream, Mongolia has just gone through a difficult year
which witnessed the country's GDP growth slowing down to 8.9 percent from 10.1 from a year
earlier and its inflation rate rocketing to 22 percent. The country's industrial output increased by
only 2.8 percent in 2008, a big drop from the 10 percent in 2007. In the same period, Mongolia's
foreign currency assets decreased by 39.8 percent and its trade deficit was 4.9 times that of 2007.
The Mongolian Government will invest USD378 million in 2009 to promote production and
consumption, and more mineral exploitation to ease financial difficulties. According to the
Government's plan, the country's GDP will keep increasing at an annual rate of 12 percent to 15
percent based on its mineral exploitation and the people will enjoy moderately prosperous lives by
2021.
Although the country boasts abundant mineral resources such as coal, copper, iron and gold, much
of which is undeveloped, Mongolia lacks capital and technologies for mineral exploitation. Analysts
say Mongolia's mineral strategy depends on the country choosing proper foreign investors. Its future
looks bright once reasonable and stable mineral exploitation schemes and investment policies are
established.
Source: www.chinaview.cn
NEW FUEL TAX FIXED IN MNT, AND NOT USD AS NOW
After long discussion, Parliament passed a law on Friday whereby the excise tax on imported oil
products goes up from USD100 per ton to MNT200,000. The increase will take effect only on April 1,
so that product prices do not rise before the Lunar New Year. The draft of the law called for the
tax to be raised to USD130 per ton, but MPs wanted the amount to be fixed in the Mongolian
currency. There was widespread support for the move “to stop calculating everything by USD”. One
MP said, “This puts us at the mercy of exchange fluctuations and effectively devalues the Turgrug.”
It was then decided to fix the tax at MNT200,000. Importers and all businesses are expected to pay
taxes and excise duties calculated in Tugrugs from April 1.
An order was issued in 1999 jointly by the Finance Ministry and the Central Bank saying all services
and tariffs should be charged in the national currency. All financial proposals and calculations were
also to be in the Tugrug. However, this is observed more in the breach. All excise tax is paid in US
dollars, and apartments are bought with them. The present move to strictly implement the existing
law is aimed at stabilizing the Tugrug against the US dollar, as also to discourage speculation. Some
companies including Zag Construction which has been in business for 17 years, have already started
receiving payment in tugrugs. They hope this will help stabilize the currency exchange rate by
reducing the demand for USD among buyers of housing and cars.
Source: www.news.mn, Niigmiin toli, Undesnii shuudan
FEWER REGISTERED AS UNEMPLOYED
According to annual employment data compiled from administrative records, 261,400 Mongolians of
working age were unemployed at the end of 2007. Of them 165,400 wanted a job, while the others
had chosen to look after children, care for the elderly or the ill in the family, or just to stay at
home. A total of 29,800 persons were registered at the end of 2008 with Divisions of Labor and

11. Social Welfare all over the country as actively looking for work. This was a decrease of 0.4 percent
or by 1,000 people from the end of 2007. Of the recorded unemployed, 59.1 per cent or 17,600
were women. Throughout the just concluded year, 52,700 registered unemployed found a job, 4.9
per cent or 2,700 fewer than in 2007.
State-owned enterprises and organizations employed 13.3 per cent or 7,000 of them, while the
remaining 86.7 per cent or 45,700 were hired by private businesses, cooperatives or other
organizations.
Source: Montsame
16,000 FOREIGNERS ALLOWED TO WORK IN MONGOLIA
Altogether 16,000 skilled and unskilled foreign nationals were permitted to work in Mongolia last
year. This number includes the 3,500 people who came to work in PetroChina Daching Tamsag
Company. The Government decided in February 2008 that foreign workers could be brought to
implement big projects and programs, including construction of buildings and fighting natural
disasters, if adequately qualified labor was not available locally. The tax to be paid for employing
foreigners was waived for 11,388 of these workers. Many are worried that the unemployment rate
will rise if it is made easy for foreigners to come and work here.
Source: en.News.mn
MONGOLIANS IN SOUTH KOREA HAVE LESS MONEY TO SEND HOME
Remittances from citizens working abroad are important to the Mongolian economy, but this is
likely to fall considerably in the coming months. With fewer jobs on offer because of a shrinking
economy still coming to terms with the global crisis, Mongolians in South Korea, for example, are in
trouble. The Mongolian Embassy in Seoul says 28,000 of the 33,000 Mongolians in that country are
there for work. The 16,704 of them who have a contract are in a relatively more secure position,
but the rest, who work mainly outside the law, are finding it difficult to get regular employment.
Apart from the loss of jobs, the other problem is the fall of the South Korean currency against the
US dollar. Mongolians usually hold jobs that pay between 800,000 and 1.2 million won, but this sum
is now worth fewer dollars. The value of remittances sent home has thus come down. According to
a Mongolian employed in the Daewoo car factory, there is no longer any overtime work to help
them make some extra money. Living expenses have also gone up, leading to a drop in what they
can send home.
Source: www.news.mn
WON WINNING AGAINST TUGRUG
Following the USD and the Chinese Yuan, now it is the turn of the Korean Won to rise against the
Tugrug. One Won sold for MNT1.02 over the weekend. Only some time ago, the Korean currency
reached a record low of MNT0.65 but it has revived as the MNT fell against the US dollar and the
Yuan. The last time one Won was equal to MNT1.02 was in 2006. At home the Won continues to
struggle against the dollar, recently reaching a record low of 1,375 for one USD.
Source: Ardiin Erkh
MILK PRICES RISE STEEPLY
Milk supply always drops in winter, but this year the problem has been aggravated by the total halt
put on imports of milk in any form from China following the melamine scandal. Prices of domestic
milk and other dairy products have soared, with a liter of milk now selling for MNT1300-1500, about
50% more than some months ago. Traders believe prices will go up further ahead of the Lunar New
Year.
Source: www.news.mn
POLITICS
PRESIDENTIAL POLL ON MAY 24

12. The date for the Presidential election has been set for May 24. It is a Sunday, as always, but
Parliament decided to advance the date from the usual last Sunday of June. Some members felt
that an election late in June would give the new President too little time to settle down in office
and prepare for the traditional Naadam address on July 11, which all Mongolia waits for. Parliament
also allotted a budget of MNT 4 billion for the presidential election.
Source: www.news.mn
BAYAR CALLS PUTIN BEFORE IRKUTSK MEETING
Prime Minister S.Bayar talked to his Russian counterpart Vladimir Putin before his visit to Irkutsk on
January 22-23. A round table conference was arranged there where Bayar was to meet the Russian
Minister for Agriculture, A.V.Gordeev, the President of the Russian Railway Company, B.I.Yakutin,
and other important officials and leaders to discuss means of developing bilateral cooperation in
agriculture, industry and road transport. The telephone conversation between the two Prime
Ministers assumes significance in this context.
Source: www.news.mn
AGENDA FOR NEXT SESSION OF PARLIAMENT
Parliament, now in recess, will reassemble in April for its spring session. The list of business for that
session includes a discussion on the following:
- The final report on the budget for 2008;
- The framework for the 2010 budget;
- Draft laws on savings-and-credit cooperatives;
- Draft law on vocational training and technical education;
- Draft law on right and freedom to obtain information;
- Draft laws on exploitation of micro-mines and on extraction of minerals by industrial
methods;
- Amendments to the quantum of customs duties on some export commodities;
- The special fund proposed in October 2008;
- The state policy on the development of the minerals sector until 2015;
- Ethical norms for parliamentarians;
- The fund from which money from mineral resources will be distributed to all citizens.
Source: Montsame
FEWER FORGERIES AND MUGGINGS, BUT RISE IN FRAUD AND ROBBERY
Altogether 20,700 crimes were recorded to have been committed in Mongolia in 2008, a decrease of
2.7 per cent or 564 from the 2007 figures. The number rose in Ulaanbaatar and four provinces by
3.7-27.5 per cent, but the national average was brought down by the 1.3-31.2 percent decrease in
the other provinces. There were fewer “crimes against social safety”, forgeries, thefts, attempted
murders, “occupation-related crimes”, traffic violations, crimes against ownership rights, against
the judicial procedure, against human freedom, rights and reputation, against military service, and
muggings. Increases were recorded in cases of fraud, unpremeditated murder, manslaughter,
physical aggression, flouting administrative regulations, robbery, crime against children, family and
social morality, against national safety, against human life and physical safety, against economic
entities, against community health, against political and other rights and freedoms of individuals,
and against environmental protection.
Of the MNT54.8 billion lost because of the crimes, an increase of 86.0 percent over the year,
restitution worth MNT 7.0 billion was possible, an increase of 75.0 per cent. Some 41.4 per cent of
the crimes that led to a loss of MNT 22.7 billion were cases of damaging individual property.
Source: www.nso.mn
MORE CHILDREN USING DRUGS
A recent study has revealed that an increasing number of school children are using narcotics. In

13. 1999 their number was 45, but it has risen to 410 now.
Revealing this at a press conference on Monday, representatives of the Central Hospital of Mental
Health, the Center for Narcotic Research, and the Mongolian Children‟s Center stressed the need to
educate children more about the harm drugs cause. They should also be warned to be on their
guard against hardened users. The national program against drugs was stopped in 2005.
Source: en.news.mn
CRIMES FALL AS ALCOHOL PRICES RISE
The number of crimes has decreased sharply after vodka prices went up by MNT500-700 last week.
The number of people going to rehabilitation centers has also fallen. Police registered only 30
incidents of crime over the last weekend in place of the usual 45-50. Of this 30 also, only a few
were related to effects of alcohol.
Source: www.news.mn
AMNESTY INTERNATIONAL CALLS FOR THOROUGH AND IMPARTIAL PROBE
Five people were killed during the riots on July 1 last year, four of them from gunshot wounds. The
violence had broken out following allegations of widespread fraud in the parliamentary elections
held on June 29. During the riots, protesters targeted the Mongolian People's Revolutionary Party
(MPRP) headquarters. They set the building on fire and looted commercial offices. Hundreds of
civilians including police officers were injured. According to local news reports, police used tear
gas, rubber bullets and live ammunition to suppress the riots. The protests were unexpected and
unexpectedly violent on a scale not previously seen in Mongolia. The riots resulted in Mongolia's
first-ever State of Emergency.
Ten police officers have been arrested and charged with premeditated murder. They are all
currently free on bail. Amnesty International has urged the Mongolian Government to conduct an
independent and impartial investigation into police use of unnecessary and excessive force. The call
comes amid popular fears that the perpetrators will not be brought to justice. "There needs to be
complete accountability for the events of July 1," said Mr. Sam Zarifi, Director for Asia-Pacific at
Amnesty International. "The Mongolian Government needs to re-establish confidence in the rule of
law and show that it is serious about protecting and promoting human rights." Amnesty
International has called on the Government to ensure that the current investigation is thorough and
that the report by the investigating body is made public.
Each of the victims' families has been granted compensation of MNT one million from the
Government of Mongolia. They have also been awarded MNT 100,000 from other government
sources.
Source: www.amnesty.org
FEWER APPLICATIONS FOR PASSPORTS IN 2008
The number of people applying for a passport dropped by about half in 2008 from previous years,
according to an official at the State Civil Registration and Information Center. “This could be the
effect of the financial and economic crisis,” he said. This was a marked change from earlier years,
when 400-500 new passports were issued every day. During some peak periods, this number would
go up to even 800.
Source: en.News.mn
THE DESERT SPREADS, CAUSING ALARM
Desertification is spreading unchecked in Mongolia, and has reached 145 of the total 365 soums or
districts in the country. A large part of its territory, heavily affected by desertification primarily in
the form of sand migration, is termed dry and arid and is considered ecologically-sensitive zones.
Surveys in 1990 showed that 76 percent of the territory was very little affected by any symptoms of
desertification, but now only 16 percent can be so described. Climate change is largely held
responsible for the development, but human factors, like mining activity and urbanization, have
also played their part.
Source: Montsame

14. NO AIR CHINA FLIGHTS FROM JANUARY 25 TO 31
There will be no Air China flights to and from Ulaanbaatar between January 25 and January 31
because of the Chinese New Year holidays. The border checkpoint between Zamiin-Uud (Mongolia)
and Erlian (China) will also be closed for three days beginning January 23. All consular offices in
Beijing and Erlian city will be closed as well. MIAT flights to and from China will not be affected.
Ulaanbaatar-Beijing and Ulaanbaatar-Khokh Khot trains will also run according to timetable.
Source: Udriin Sonin
______________________________________________________________________
SPONSORS
ECONOMIC INDICATORS
MSE WEEKLY REVIEW
For the week ended January 16, 2008, trading activity on the Mongolian Stock Exchange (MSE)
totaled 71,100 shares with 32 companies traded. Total market value of transactions was MNT 28.1
million. Total market capitalization of the 358 stock companies listed on the MSE was MNT 478.4
billion, and decreased by MNT 25.3 billion or 5.0% from the previous week.
The Top-20 Index decreased by 285.65 points or 5.1% compared to the previous week closing at
5,279.58 points. The MSE Composite Index decreased by 140.23 points or 5.1% compared to the
previous week, closing at 2,623.93 points.
Most active stocks traded were: Genco Tur Buro (25,900 shares), Khuh gan (11,100 shares), HB Oil
(8,000 shares), Moninjbar (4,500 shares), and APU (3,600 shares).
Major share price percentage gainers were: Altain zam (15.0%), Auto Impex (14.3%), Khuns
Arkhangai (14.0%), and Mogoin gol (2.8%). Major share price percentage losers were: Tavan Tolgoi
(27.7%), Khorinkhoyordugaar (15.0%), UB Hotel (15.0%), Bayangol Hotel (13.5%), and Gankherlen
(12.5%).

15. INFLATION
Year 2006 6.0% [source: National Statistical Office of Mongolia (NSOM)]
Year 2007 Avg. 9.0% [source: NSOM]
Year 2007 *15.1% [source: NSOM]
Year 2008 *22.1% [source: NSOM]
* year over year (yoy)
CURRENCY RATES – January 22, 2009
Currency name Currency Rate
US dollar US 1370.89
Euro EUR 1769.34
Japanese yen JPY 15.27
British pound GBP 1891.83
Hong Kong dollar HKD 176.68
Chinese yuan CNY 200.48
Russian ruble RUB 42.12
South Korean won KRW 1.00
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.