Japan to extend $850 million bailout loan to Mongolia: finance ministry

ULAANBAATAR (Reuters) - Japan has committed $850 million in loans to Mongolia as part of a bailout to help rescue the country’s struggling economy, Mongolia’s finance ministry said on Wednesday.

Mongolian flag flies on the top of parliament building in Ulaanbaatar, Mongolia, June 29, 2016. REUTERS/Jason Lee

Mongolia, landlocked between China and Russia, agreed to a $5.5 billion bailout from the International Monetary Fund (IMF) as well as other institutions and countries in February.

The cash-strapped Asian country saw its economy grow just 1 percent last year, its lowest in seven years, and it has struggled to maintain the value of its currency and manage its debts following a collapse in foreign investment and a decline in commodity prices.

The $850 million loan from Japan was agreed during a visit to Tokyo this week by the chairman of Mongolia’s parliament, Miyeegombo Enkhbold, said an official at the Finance Ministry. Negotiations have not yet been completed, the official added.

“This amount is almost equal to all soft loans provided by Japan to Mongolia since its transition to a democracy and market economy,” said analyst Dale Choi at Mongolian Metals & Mining in a note on Tuesday.

The loan comes in addition to the three-year IMF Extended Credit Facility worth $440 million, as well as an extension to a 15 billion yuan ($2.18 billion) swap line Mongolia’s central bank has agreed with the People’s Bank of China.

Japan and South Korea, will provide up to $3 billion in aid, the IMF said in its February announcement.

Lawmakers, however, must still act to ensure the bailout goes through when Mongolia’s parliament reconvenes on April 5 after a recess.

As part of the IMF deal, parliament is expected to vote on legislation that will generate revenue and reduce spending, with hikes in taxes and cuts in social welfare expected.

Mongolia’s pivot to Japan and South Korea for expanded trade and development is the result of its “Third Neighbor” policy strategy aimed at easing its dependence on Russia and China. Mongolia’s has been one of the countries most affected by China’s economic slowdown.

Last year, Japan and Mongolia enacted a free trade agreement that grants zero tax on certain imports and exports, including Mongolian coal and cashmere.

Reporting by Terrence Edwards; Editing by David Stanway and Shri Navaratnam