Mongolia’s Prime Minister unveiled a stimulus bill, dubbed a “100-day action plan,” that will seek to revive the mineral rich nation’s flagging economy.
Prime Minister Altankhuyag Norov’s 50-point agenda promises to boost infrastructure, mining, manufacturing and the development of small and medium-sized businesses. The bill still needs the approval of parliament and is part of a renewed drive to improve the economy after two years of slowing growth.
“Within these 100 days we believe we should reduce bureaucracy, increase mining, approve the re-issue of exploration licenses” and resolve a dispute over 106 canceled mining licenses, Altankhuyag told foreign press and diplomats from nations including the U.S., China and Russia, at a briefing in the capital, Ulaanbaatar, today.
Mongolia is seeking to energize an economy that saw growth decline from a world-beating 17.5 percent in 2011 to 11.7 percent last year. A rift with Mongolia’s biggest investor, Rio Tinto Group, is among mining disputes that have chilled foreign investment, which fell 28 percent in the first two months of this year and 54 percent last year. The Mongolian tugrik fell to a record low of 1,796 to the dollar on April 29 and has lost 25 percent of its value over the past 12 months.
Altankhuyag’s plan broadly seeks to promote foreign investment and reduce Mongolia’s reliance on imports. Infrastructure spending proposed includes building a road to connect the landlocked nation’s two neighbors, Russia and China; constructing thermal power stations; and developing two free economic zones. It also calls for improved debt management, tax incentives for foreign banks, and raising the amount of Mongolia’s currency swap agreement with China.
Mongolia will also offer concession projects worth $1 billion “not only in mining but also in the tourism sector,” Altankhuyag said.
“It’s important to focus on local businesses as well as mining and the fact that they are trying to do multiple things simultaneously is a good thing,” said U.S. ambassador Piper Anne Wind Campbell, who attending the briefing. “I do think you have to move forward on all these as opposed to looking for one silver bullet.”
Altankhuyag, 56, faces public pressure to improve the economy after citizens, numbering many hundreds according to an eyewitness account, rallied at least twice on Ulaanbaatar’s Chinggis Khaan Square earlier this month to protest against an inflation rate that’s running at 12.4 percent.
Underscoring the challenges for the economy, Standard & Poor’s yesterday lowered Mongolia’s long-term sovereign rating to B+ from BB-, or four levels below investment grade.
Since breaking free of Soviet influence and embracing democracy in 1990 Mongolia, the nation of three million living in an area three times the size of France has struggled to balance the development of its natural resources, which have been estimated to be worth $1.3 trillion.
Laws have seesawed between favoring the interests of foreign investors and appealing to an increasingly nationalist electorate. Double-digit economic growth for three straight years has yet to translate into personal wealth, with one in four Mongolians living below the poverty line, according to The World Bank.
In terms of the 106 licenses issue, Mongolia is preparing to overturn last year’s cancellation of the permits, according to one company stripped of its permit.
The mining ministry has proposed returning the licenses to “compliant” holders, including a “mechanism to compensate for the time lost due to original judicial process,” Vancouver-based Kincora Copper Ltd. said earlier this week.
Key to unlocking more investment would be reaching agreement with Rio Tinto over $4.2 billion in project financing to re-start the expansion of the Oyu Tolgoi copper and gold project. The mine is forecast to account for about a third of Mongolia’s economy once in full operation.
Altankhuyag didn’t address Oyu Tolgoi in his briefing. The two sides have been locked in negotiations on how to finance the project for over a year. Turquoise Hill Resources Ltd., the Vancouver-based unit of Rio that owns 66 percent of the mine, said earlier this month that commitments to finance the expansion have been extended to September 30.
Mongolia is also working to reverse earlier decisions that have been blamed for the drop in foreign investment. In October, parliament approved a law that removes distinctions between foreign and domestic investors and simplified the tax regime. Earlier this month, the government said it plans to annul a 2010 law that suspended the issuance of new mining exploration licenses.
Other measures that have been proposed include setting up a professional horse-racing league that would see betting legalized to compete for the Chinese gambling market and help diversify the economy.