ULAN BATOR, Mongolia: Jittery over small bank runs and falling commodity prices, Mongolia’s government is guaranteeing all bank deposits, as the remote country tries to ward off the global financial crisis.
Parliament approved the law Tuesday to try to shore up confidence in Mongolia’s 16 commercial banks, which hold $1.1 billion (1.3 trillion tugrig) in deposits, and to ensure banks keep lending to buoy the economy.
“The world economic crisis is not affecting Mongolia directly. However, we are feeling the shock,” Prime Minister Bayar Sanjaa told reporters. Bayar said some Mongolians had started to withdraw their savings from banks out of concern they might collapse and that in part prompted the government to act to issue its 100 percent guarantee for deposits.
Once the heart of an empire founded by Genghis Khan that reached across Asia to Europe, Alaska-sized Mongolia is among the poorest countries, with a third of its 2.8 million people living in poverty. Mining, especially of copper, is the lifeblood of the economy. High prices for minerals boosted economic growth to better than 9 percent last year, with most of the output sold to neighboring China.
But copper prices have plunged by half this year, to $3,900 per ton from $7,800, as the world economy slows. The drop has crimped government revenues, most of which come from taxes on copper. As a result, the government has been forced to reduce spending, laying off some civil servants and telling others to cut back on phone calls and driving official cars.
Getting large-scale mining projects going will be the best medicine to reinvigorate the economy, Bayar said. Until then, the government hopes that banks will continue to lend money, cushioning the economy.
“The Mongolian banking system is sound and stable. It is not on the edge of collapse or anything like that,” Finance Minister Bayartsogt Sangajav told parliament when urging legislators to approve the 100 percent guarantee on bank deposits. “This law is designed to safeguard collapse of the banking system.”
To further bolster the banks, the government has asked parliament to approve a law to inject $250 million (300 billion tugrig) in state treasury funds into the commercial banks to encourage lending.
In an effort to curb widespread tax evasion and replenish revenues, parliament also raised the threshold price for a windfall for profit tax on gold. The 68 percent tax on profits will be now imposed when gold prices climb above $850 an ounce, rather than the $500 mark set two years ago. The $2,600 a ton threshold for copper remains unchanged.
Source: Herald Tribune