By L.Bolormaa
The Development Bank of Mongolia was able to take a few deep breaths after the visit of the President of China, Xi Jinping. The reason was that the China Development Bank had agreed to lend it $162 million, repayable in 8 years at 6 per cent interest.
Why is this money so important for the Development Bank of Mongolia?
In 2017, the Development Bank will have to redeem its bonds worth $580 million. The Chinese loan will come in handy in easing the pressure, if only for a while. One loan will be settled with another. The Development Bank will also open negotiations with the Credit Suisse Group in September to borrow $300 million in another attempt to relieve the burden of redeeming the bonds mentioned above.
However, even if the Development Bank survives the year 2017, there will be another redemption payment due in 2018, with the maturity of Chinggis Bonds worth $500 million. There is a small respite thereafter, as the remaining payment of $1 billion Chinggis Bond will be in 2022.
Mongolia has been enjoying the pleasant warmth of this passing summer but at the same time dreading the harshness of the coming days. Mongolians heard the news of the second debt default by Argentina on July 31. It is Mongolia’s first time of getting ready to repay commercial borrowing, unlike Argentina which has had debts for decades.
With the year 2017 on the horizon, the Government of Mongolia and President Ts.Elbegdorj awaited the visit of the President of China with a ‘debt alert’. Besides the Development Bank’s loan, a general negotiation for a soft loan of $1 billion also took place.
China has agreed to provide opportunities for Mongolia to export its mineral products through the ports of Tianjin, Dalian, Jinzou, Qinhuangdao and Dandong. Of these, Tianjin is seen as the best choice. Infrastructure to Dandong hasn’t been built yet as its Feasibility Study is only at the discussion stage. Incidentally, a general agreement to export products to northeast Asian countries through Dandong was signed during Prime Minister N.Altankhuyag’s visit to China last year.
The Mongolian economy can lift itself up from the bottom with a little bit of perseverance. However, the annual growth of the Mongolian economy will not be as high as in previous years, given the chain of bond redemption schedules.
How much time do we have for this “little bit of perseverance”? Mongolia is about to run out of its foreign exchange reserves. Its imports cost a minimum $150 million every month. If this much goes out of the currency reserve in the remaining months of this year, Mongolia would be completely bankrupt. So the “little bit of perseverance” is actually quite more.
Mongolia is looking forward to a “gift” from the Russian President V.Putin to avert becoming an international defaulter. Of the $150-million import bill, $100 million goes to pay for fuel from Russia. Hopes are running high that Mr. Putin’s forthcoming single-day visit will be marked by an announcement that this is now to be marked as a loan.
Mongolia has actually submitted two proposals to V.Putin to ease its difficulties. One is to treat the fuel import as an item of foreign trade where payment will come later. The other is to make an agreement on a ruble swap, similar to the 15-billion yuan swap agreement with China made between the central banks of the two countries during Xi Jinping’s visit. Russia is believed to have considered both proposals favourably. So far the Russian central bank has never been warm to a swap agreement, but its mood has changed in the new international environment and changing economic scenarios.
Another possibility to increase trade and accumulation of ruble will come if a visa-free travel agreement is made between the two countries and if Russian companies get a chance to participate in Mongolian mining projects.
Which Mongolian projects interest Russia most? You may have noticed that there hasn’t been much of a preparation for V.Putin’s visit. Most of the talk has been about the victory of Khalkhyn Gol and culture. Maybe President Putin first wants implementation of the two agreements signed when he visited Mongolia in 2009 as Prime Minister. One of these was for Russia to participate as an equal partner in new railway projects and the other was to establish a joint company in Mardai uranium deposit in which Russia would own 50 per cent. Following sanctions against Russia, Australia has stopped supplying uranium to it, so Mr. Putin is likely to be extra keen on the uranium.
Uranium was also discussed during Mr. Xi’s visit. China is interested in obtaining the exploration licence for Gurvanbulag uranium deposit and has also expressed its readiness to partner Mongolia in the construction of the new railway. With both our neighbours showing interest in the same two things -- uranium and railway -- what we truly need is the wisdom to turn this rivalling interest to Mongolia’s advantage and to win from the competition between our neighbours.
Thanks to gifts from Xi and Pu, Mongolia is likely to repay its bond debts without any international loss of face, even if this means that in the long-run, our loan structure will look different. However, this reliance on our neighbours is not the option we desired. Both neighbours have their plans in place, and it is for us to find an honourable exit. Our hope lies in creating an opportunity from the competition between the neighbours.
On the morning of Mr. Xi’s visit, it rained in Ulaanbaatar and the USD fell a little, actually because $100 million was received as advance payment for copper concentrate from Erdenet. Mongolians took the rain as a good omen for Xi’s visit. Some are similarly hoping that President Pu’s visit would be on a pleasant autumn day in Ulaanbaatar.