CORRECTED-Mongolian bonds in tailspin as coalition government teeters

Wed Dec 5, 2012 4:31am EST
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(Deletes reference to MPRP ruling Mongolia for much of the 20th century in paragraph 5.)

By Terrence Edwards

ULAN BATOR Dec 5 (Reuters) - One of the members of Mongolia's fragile coalition government has ordered its ministers to leave their posts, a move that has sent the country's bonds into a tailspin and could threaten the passage of crucial legislation.

Mongolian bonds plunged $7-$8 on Wednesday on the news that the populist Mongolian People's Revolutionary Party (MPRP) was no longer prepared to work with the free-market Democratic Party, the country's biggest party, following June elections.

Prime Minister Norov Altankhuyag was in Kyrgyzstan and no one has yet officially accepted the MPRP's resignation.

An end to the coalition, formed after a week of tense negotiations in July, would reflect the country's struggle to balance the interests of foreign investors with the need to appease growing nationalist sentiment at home, but tensions have also been stoked by the imprisonment of the MPRP's leader, Nambar Enkhbayar, on corruption charges.

The MPRP ordered all its members holding ministerial posts to resign during a meeting on Monday. The next day, party general secretary G. Byambasuren said the decision was made as a protest against Enkhbayar's imprisonment.

Last week, Mongolia's $1.5 billion debt offering was 10 times oversubscribed, with investors attracted by the country's copious reserves of coal and copper and its 17.3 percent rate of economic growth in 2011.

The new round of political instability has not only sent bond prices plummeting, but could also dissuade investors to participate in any future offerings.   Continued...