"Mongolia, once the darling of foreign investors and mining corporations, has had a large question mark looming over it over the past few years," says Thomas Hugger of fund management firm Asia Frontier Capital. Government back-tracking on profit-sharing agreements for mining projects has rattled investors and sent stocks tumbling 30% in the past year.
Still, following a business-friendly election result and new laws promising more investor protection, the outlook had been getting brighter.
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While policymakers minimised the immediate fallout by having a state-owned lender quickly take over its deposits, "the failure has raised doubts about the central bank's grip on Mongolia's financial system" at a time when credit has been growing rapidly (up 40% in the past year). The country's "undoubted commodity wealth" means vast growth potential, but the foundations of the present boom are looking shaky.
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