Steven
Barnett, the Beijing-based International Monetary Fund (IMF)   Representative for Mongolia, has told
journalists that the IMF’s Stand- by Program in Mongolia ended on  October 1 on a very successful note. The
economy was on the verge of collapse. 18 months later, growth is expected to
hit 8 percent this year, international reserves are at an all time high, public
finances are on a sound footing, and the banking system has been strengthened.

The
main goal of the Fund-supported economic program—which included a stand-by
phased loan of around USD230 million, and was put in place in early 2009—was to
ensure that Mongolia quickly returned to a path of strong, sustained, and
equitable growth with low inflation. Mongolia’s successful turnaround stems
first and foremost from the authorities’ strong policy response to the crisis,
supported by significant resources from the international community, including
the IMF loan. There were four pillars to the strategy recommended in the
program.

First,
a flexible exchange rate was followed to rebuild international reserves. In
early 2009 the authorities implemented a regime that limited intervention to
smoothing excess volatility and opportunistically building reserves.
Intervention was exclusively and transparently carried out through twice-weekly
auctions. This new regime was supported by an up-front 400-basis-point hike in
the policy interest rate, which was effective in calming markets and attracting
capital back into Mongolia. The foreign exchange market stabilized rapidly and
international reserves have now reached an all time high of USD1.6 billion.

Second
came restoring the health of public finances. Financing constraints forced a
large fiscal adjustment in 2009, which was achieved mainly through a
reprioritization of spending. The fiscal adjustment continued and Parliament
passed a comprehensive fiscal responsibility law.

Third,
the poor had to be protected from the burden of adjustment. Social transfers
were increased during the program period in order to shield the most vulnerable
from the impact of last year’s recession.

Fourth,
the banking system needed strengthening. Confidence in the system is being
restored, and risks have been contained. Parliament has approved a revised
banking law that will strengthen the regulatory framework. Tougher supervision
regulations have been issued and are now being enforced.

Barnett noted that
inflation now is about 10%, much lower than the 25% when the program began. Predicting
the inflation rate is difficult but he hoped the Central Bank would be able to
keep the situation under control. In Mongolia inflation rises when the prices
of imported food products rise, but the country has no control over this.

Asked about “politicians’ populist promises”, Barnett said these can be
supported if the country has the economic capacity and if the money us used for
long-term economic development. The Fund will carefully consider any request
for assistance from  Mongolia to implement
any project.