Mongolian currency weakens to 2,480, pops by 50!

Today, February the 13th, is notable for many famous events. Today in in 1633, Italian philosopher, astronomer and mathematician Galileo Galilei arrived in Rome to face charges of heresy for advocating the Copernican theory, which held that the Earth revolved around the Sun. In 1689, the British Parliament adopted the Bill of Rights. And in 1923, born was Charles “Chuck” Yeager, the first man to break the sound barrier.

For many months now, Mongolia has been facing a payments crisis. Today marked a day that its currency, the Mongolian tögrög (MNT-USD pair), weakened to lose over 50% of the gains since January 2017 low of 2,497. It has also lost 50% since Oct, 2013.

Source: Bloomberg, thebullishbearblogger

Source: Bloomberg, thebullishbearblogger

Being a country whose economic activity is dominated by mining (Mining made up 25% of GDP in 2015, and Copper, gold, iron ore and other metals made up 67% of exports that year, while coal and crude oil made up 23%), its growth barometers correlate remarkably well with commodity prices.

Here’s a graph of Mongolia’s GDP against the commodity prices, via FT.com:

Source: IMF, World Bank, Asian Development Bank, Financial Times

Source: IMF, World Bank, Asian Development Bank, Financial Times

And here’s data from Bloomberg showing how Mongolian M2 money supply growth varies closely with the commodity basket proxy, played here by the Rogers Commodity Index:

Source: Bloomberg, thebullishbearblogger

Source: Bloomberg, thebullishbearblogger

But bureaucracy and corrupt governance has played a key role in the country’s weak macroeconomic financial situation. Mongolia needed an IMF rescue in 2008-09, yet government and government-affiliated entities raised billions of dollars through foreign-currency bond issuance and international loans, especially starting from 2011.

Source: Bank of Mongolia, Financial Times

Source: Bank of Mongolia, Financial Times

Hence, Mongolia has once again had to open its doors to the International Monetary Fund, promising “6-8% growth” for “at least 10 years.” Mongolian Finance Minister Choijilsuren Battogtokh said his government and the IMF will likely agree on the basic conditions by Feb 15th, 2017. Such conditions typically include fiscal and monetary austerity measures and structural reforms.

Should the Mongols welcome this step? Past record seems to hardly suggest so. The IMF has a notorious reputation for riot plan (In Joseph Stiglitz’ own words), subverting the will of democratic nations (Threatened Germany with abandonment of the troika in the wake of the Greek crisis) and serving the establishment (Justified policy inconsistencies by unequivocally favoring the United States over Russia during Ukraine’s $3 billion debt default towards the latter). It is also headed by a convicted fraudster, Christine Lagarde, who was excused any punishment because of her “strong international reputation,” which was bizarrely tarnished irreparably by the judgment itself.

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In order to make Mongolia great and free from debt again, it needs the Iceland doctrine: shed the debt, jail the corrupt, and then back its currency with commodities and restore the soundness in its banking system!

Recommended podcast:
London analyst issues dire warning: Trump could trigger a great depression >> Silver Doctors (Feb, 2017)

Recommended readings
Battered Mongolia faces make-or-break moment >> Nikkei Asian Review, Financial Times (Feb, 2017)
IMF’s four steps to damnation >> The Guardian (Apr, 2001)
The IMF confesses it immolated Greece on behalf of the Eurogroup >> Yanis Varoufakis (Jul, 2016)

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