VZCZCXRO6752
PP RUEHLMC
DE RUEHUM #0774 2850844
ZNR UUUUU ZZH
P 120844Z OCT 06
FM AMEMBASSY ULAANBAATAR
TO RUEHC/SECSTATE WASHDC PRIORITY 0453
INFO RUEHMO/AMEMBASSY MOSCOW 1605
RUEHBJ/AMEMBASSY BEIJING 5269
RUEHUL/AMEMBASSY SEOUL 2497
RUEHKO/AMEMBASSY TOKYO 2266
RUEHOT/AMEMBASSY OTTAWA 0349
RUEATRS/DEPT OF TREASURY WASHDC
RUCPODC/USDOC WASHDC 1110
RUEHLMC/MILLENNIUM CHALLENGE CORP WASHINGTON DC 0373

UNCLAS ULAANBAATAR 000774 
 
SIPDIS 
 
SIPDIS 
 
STATE PASS DOC/ITA, USTR, USTDA, OPIC, AND EXIMBANK 
STATE FOR EAP/CM, EB/TPP, OES/IHA 
USAID FOR ANE CALISTA DOWNEY 
 
E.O. 12958: N/A 
TAGS: ECON ETRD PGOV MG
SUBJECT: High Commodity Prices Create Rosey Optimistic Figures 
 
Refs:  (A) Ulaanbaatar 576, (B) Ulaanbaatar 621 
 
¶1. Summary and comment:  Mongolian government economic figures 
confirm that high commodity prices continue to fill government 
coffers.  The budget surplus in the first eight months of 2006 was 
US $190 million, or 10% of official GDP.  Rising commodity prices on 
the country's principle exports have allowed Mongolia to cut its 
trade deficit to a paltry US $4.6 million.  Other economic 
indicators are also positive, including moderate inflation and 
sharply higher international tourism arrivals.  The problem: Despite 
the risk of commodity prices slumping again, Mongolia's politicians 
cut tax rates sharply this summer and are planning to continue 
sharply raising social welfare payments.  The budget now in 
preparation aims at a 4% deficit -- and that's if commodity prices 
stay high.  End summary and comment. 
 
¶2.  The Mongolian Statistical Office reported in mid September that, 
during the first eight months of 2006, Mongolia's general government 
budget overall balance was in surplus by MT 217.4 billion (US $186.6 
million), or almost 10% of GDP.   Total tax collections shot up by 
51.9% compared with the same period in 2005.   Taxes on foreign 
trade increased by 27.6%; value added taxes rose by 31.8%; and 
excise taxes climbed by 23.0%. 
 
¶3.  The consumer price index increased by a modest 4.7% from the 
corresponding period of last year -- but was up 46.9% since 2000, 
reflecting last year's impact of higher petroleum and energy costs. 
 
¶4.  Mongolia's foreign trade is nearly in balance, with an extremely 
modest deficit of US $4.6 million for 2006 despite imports 
increasing by 32%.  The value of exports rocketed by 60.2%, thanks 
mainly to spiking commodity prices for Mongolia's main exports of 
copper and to a lesser extent gold.  Copper concentrate exports rose 
12.1% by volume over last year, while prices jumped 91% (from an 
average of US $513 per ton in the first 8 months of 2005 to $982 
this year).  Mineral exports overall rose US $288.7 million. 
(Comment: Under other circumstances, export increases would have 
been much greater.  Septel notes that a windfall profits tax passed 
in May has led so far to huge stockpiles as producers hope for 
repeal or attempt to figure out ways around the tax.  With gold 
sales down by 12 tons over last year, but production continuing 
unabated, estimates are that $227 million of gold, or more than 12% 
of GDP, is now being held unsold.) 
 
¶5.  Industrial output rose 3.2% from the same period last year (up 
14.7 million USD to 469.6 million USD) led by increases in several 
areas such as apparel production, clothing accessories, wood 
products, leather products, food a beverage among others. 
Production of main items of industrial products, electricity, 
thermal energy, copper concentrate, molybdenum concentrate, crude 
oil, knitted goods, medical tablets, liquid medicine, meat, spirit, 
alcohol, bakery products, cement, metal steel, metal foundries, 
combed down, increased by volume. 
 
¶6.  During the first 8 months of 2006, international air passengers 
grew by 29.5%, as tourists flocked in for Mongolia's 800th 
anniversary celebrations.  Overall, the transportation sector saw 
modest increases in the amount of freight and passengers carried, 
with rail networks seeing a 2.7% increase in freight and a 0.3% 
increase in passengers serviced compared to figures over the same 
period in 2005.  The month of August, 2006, however recorded larger 
numbers in air freight and passengers year on year with an increase 
of 4.8% in freight and 10.8% in passenger traffic. 
 
¶7.  The government statistics showed that the number of registered 
unemployed decreased by 2,100 persons (5.9%) to 33,400 persons from 
the same period last year.  Women made up 57.1% of the unemployed. 
Over the course of 2006, more than 26,000 registered unemployed 
found work, 11.3% in government or state-owned enterprises and 88.7% 
in the private sector.  (Note: As in other developing economies, the 
official figures fail to count many persons who are unemployed.) 
 
MINTON