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ULAANBAATAR, May 2 (Reuters) - The International Monetary Fund (IMF) has postponed a $5.5 billion bailout for Mongolia because of a measure included in the 2017 budget that forces foreign firms to bank with domestic institutions, the IMF's country representative said.
Mongolia's economy has slid into a crisis caused by heavy foreign debt, a collapse in its currency and a slowdown in growth in its biggest trading partner, China. The IMF board had been expected to approve a rescue package at a meeting on April 28.
"The Board discussion was postponed," said Neil Saker, the IMF's Mongolia country representative, in emailed comments, adding that they needed to examine the details of a new measure covering foreign exchange transactions by investors.
The IMF announced in February a $440 million Extended Fund Facility that Mongolia can draw on for three years, in addition to $3 billion from Japan and South Korea and a three-year extension to a 15 billion yuan ($2.18 billion) swap agreement with the People's Bank of China.
In the 2017 budget approved in the early hours of the morning on April 14, legislators introduced tax changes that would allow it to meet conditions set by the IMF.
But it also included a clause seeking to "improve" investment agreements with foreign partners, forcing firms such as miner Oyu Tolgoi LLC, jointly owned by Mongolia and Rio Tinto , to do all their banking with Mongolian institutions.
"We need a bit more time to understand the nature and the specifics of the measure, and whether the macroeconomic framework of the program remains valid," said Saker.
Mongolia's Ministry of Finance and Ministry of Foreign Affairs did not immediately respond for comment. ($1 = 6.8937 Chinese yuan renminbi) (Reporting by Terrence Edwards; Editing by Simon Cameron-Moore)