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Cash injection equivalent to a quarter of currency in circulation is to hit the economy next week

ALL MNT DENOMINATED ASSETS

EVENT

According to Government of Mongolia on May 16, 2012 (http://open-government.mn/read-1437-.html) ,

Finance Minister D.Khayankhyarvaa  has informed that 1 million MNT will be started to be issued starting next week in Ulaanbaatar to those senior and developmentally challenged citizens who have applied for cash. In doing so, money for April and May will be issued together.

According to Ministry of Social protection and Labor of Mongolia, as of May 15,2012,  272 582 senior and developmentally challenged citizens have applied to receive one million MNT bounty and share in cash.  According to interview of Finance Minister to major Mongolian daily “Zuuny Medee”, remaining 90% of senior and developmentally challenged citizens preferred to keep the shares.

Further, according to Government , also, as of May 15,2012, 738 917 citizens expressed desire to sell the Erdenes Tavantolgoi shares to Government. 97% of those or 717 748 citizens applied to sell shares and get cash, 21 thousand citizens in form of payment for residence, 294 citizens in form of education and health payment. According to reports, those monies are to be paid next year in three installments.

Further, according to Government, Cabinet meeting will finalize issue of nominal price of Erdenes Tavantolgoi company shares next week. After nominal price will be decided the shares will be started to be sold to national enterprises since June 1,2012.

Also next week 50 billion MNT will be transferred to State Bank to enroll citizens to 6% residential loans and 50 billion MNT to Development Bank to support SME.Finance Minister also informed that funding necessary for vertical axis road works and rail road construction has been fully resolved.

According to interview to major Mongolian daily “Udriin Sonin” on May 15,2012 Finance Minister said

that it has been planned to pay 330 thousand MNT per senior and developmentally challenged citizen per month in April, May and June. However, funds were not accumulated because of “funding shortcoming difficulty”.  344 billion MNT accounted in the budget for payments are estimated to come in from dividends of Erdenet copper mine and prepayments to Erdenes MGL company. “We have requested those companies to accumulate monies in the budget.”

In interview to major Mongolian daily “ Mongolyn Unen” on May 14,2012 Finance Minister said that funding from Erdenes Tavantolgoi and Erdenet mines will come in on May 15,2012.

“In anycase, 334 billion MNT will be transferred before July 1,2012.”

“Dividing money or not, it will impact inflation.”

IMPACT

•            Negative for MNT denominated assets. We expect continued significant inflationary pressure. According to Bank of Mongolia,

Inflation: 2012/04

MoM    YTD       YOY

Ulaanbaatar      0.2         8.4         17.8

State                   0.5         8.2         16

Target   <10%

According to National Statistics Office of Mongolia, “the increase in national consumer price index compared to the previous month was mainly due to 0.7 percent increase in food and non-alcoholic beverages and 2.0 percent in clothing, footwear and cloth”.

  • Further, according to the Statistics, “at the end of April 2012, currency issued in circulation reached 708.9 bln.tog, increased by 60.4 bln.tog or 9.3 percent compared to the previous month, and increased by 80.3 bln.tog or 12.8 percent compared to same period of the previous year.”
  • Payments next week are estimated to be 660, 000MNT for 272 582 senior and developmentally challenged citizens or approximately 180 billion MNT(equivalent to approximately 136 million USD). That would be equivalent to a quarter of currency in circulation and 2.82 % of money supply.

RECOMMENDATION

•           We recommend investors especially those based in Mongolia to account for significant inflation already and further continued substantial inflationary pressure.

  • Inflation is to impact exchange rate to certain degree and vice versa.

 

Dale Choi | Chief Investment Strategist | Frontier Securities | #705, Blue Sky Tower, Peace Avenue 17, 1st khoroo, Sukhbaatar district, Ulaanbaatar, Mongolia| Office: +976 7011999 | Mobile: +976.99103371 | Email: This email address is being protected from spambots. You need JavaScript enabled to view it.">This email address is being protected from spambots. You need JavaScript enabled to view it.