MPs B.Javkhlan and B.Battumur held a press conference reporting on the outcome of the Mongolian People’s Party (MPP) regular session held on November 7, which discussed the bill on the state’s 2017 economic agenda and the government’s approach to monetary policy.

The following is an interview with MP B.Javkhlan conducted by following the press conference.

An IMF working group was in Mongolia for ten days and recently left. How successful were the meetings with the IMF? The IMF made it clear that they are ready to help Mongolia, but the two sides must come to an agreement before any action can be taken. Is the government still interested in receiving a bailout from the IMF? What were the results of those meetings?

Prime Minister J.Erdenebat and President of Mongol Bank N.Bayarsaikhan were both present during the regular session of the MPP. In the last two weeks, government agencies, Mongol Bank, and Parliament all met with the IMF working group. They collected very detailed information about our economy and went back after they had finished their research. In the past, we cooperated with the IMF in 1990 and 2008. Back then, the requirements that were given to us were different from what is required now. For example, in the past, they used to pressure us with their version of monetary policy, but they have become more flexible now. It was clear that our voices were heard. They were interested in our plan to overcome economic hardships. The working group was also interested in finding out what steps Parliament, Mongol Bank, and the government would support. The debt our country has incurred compared to our GDP shows a very high discrepancy. Therefore, the IMF seems to be calculating risks. The working group also reminded us that there are other avenues for financing aside from the IMF.

So, outside of implementing the IMF’s stand-by agenda, is it possible to receive loans from China?

Yes it is possible. These two loans are different. The IMF is offering a low interest loan with a one to two year maturity rate. The loans we are exploring from China and other countries are long term loans with a low interest rate. In my opinion, we need to implement the standby agenda in order to improve our current financial situation. In other words, by implementing the standby agenda, we will increase our chances of receiving a better long term loan.

What requirements did the IMF have for Mongolia?

Budgetary discipline. They require that we abide by our budget stability law and debt management law. This year is forecast to have a nine percent budget deficit. They require that we work to manage this deficit. They also require that we cut back on our operational expenditure.

If we implement the standby agenda and receive a one billion to 1.5 billion USD loan from the IMF, it has been speculated that the money would be used to pay off the Samurai Bond and the Chinggis Bond. Is this true?

The repayment of the Chinggis Bond will start later this year. We need to pay 60 million USD by the end of this year, 300 million USD in 2017, and 500 million USD in 2018. Of course, a certain amount of the loan from the IMF will be used to pay off the Chinggis Bond. The IMF has emphasized that we must look for other avenues of financing in order to spread out our risks. Our policy is to use most of the money from the loan for our operational expenditure and budget financing.

You recently became the head of the working group tasked with amending monetary policy. What changes are you making to monetary policy?

The MPP recommended two amendments to monetary policy. One is to support the development of non-banking financial institutions. Investment fund, participants in the securities market, and insurance companies will all be included. This move would help diversify the financial environment, which has become overly dependent on banking institutions. In other words, we are increasing options for people seeking out loans. The second amendment has to do with the liberalization of the banking market. In other words, the amendment will support the creation of a financial institution that offers low interest loans to customers.

Commercial banks account for 90 percent of the financial market share. There have been calls to develop other institutions in this market. Will the two amendments you mentioned help develop investment funds, the securities market, and the insurance industry?

These amendments would change the whole system. This cannot be done in one year. This could continue for four to eight years. By amending monetary policy, we can start this systemic change. If the government, the Financial Regulatory Commission, and Mongol Bank take more significant measures, it would be a big contribution.

There have been reports that five foreign banks have filed requests to start operations in Mongolia. You previously worked as the vice president of Mongol Bank. What banks have filed requests to operate in Mongolia? Is it right to allow foreign banks to operate here?

I do not know exactly which banks have filed requests. From what I have heard, no international banks have filed requests to open branches in Mongolia. In 2011 and 2012, when the economy had exponential growth, many international banks were interested in operating here. Now that our credit score has declined and our economic growth has stalled, not many banks are interested in operating here. We need to have an open policy concerning the international community. Especially now, when foreign direct investments have significantly decreased and the flow of foreign currency has declined, we need to be open to international financial and banking institutions.

You have probably conducted studies as part of the working group focused on amending monetary policy. What risks face the financial sector if foreign banks and financial institutions begin to operate here?

What we cannot stop doing is protecting the domestic banking market. Our domestic commercial banks are very active in the savings market. This market can be handled by our domestic banks. If foreign banks operate here, they would not be allowed to operate in the savings market. They could offer large loans that our domestic banks cannot. They could also cooperate with domestic banks if they were permitted to issue smaller loans. We can regulate foreign banks, such as requiring their workforce to be 70 to 80 percent Mongolian.

So, you do not deny that there is a possibility that foreign banks could operate here?

We need to strengthen our legal environment and improve our regulations. As I mentioned before, in a time when foreign direct investments have significantly decreased and the flow of foreign currency has declined, we need to be open to international financial and banking institutions.