Emissions from a power plant chimney rise over Ulaanbaatar, Mongolia. Photo: Reuters/B. Rentsendorj

Mongolia’s legislature removed the main obstacle to an International Monetary Fund-led bailout for its crisis-ridden economy by annulling a controversial banking requirement for foreign-invested projects, state news agency Montsame said Friday.

The IMF board had been expected to approve a US$5.5 billion rescue package for Mongolia at a meeting on April 28, but delayed a decision amid concerns about a clause that required foreign projects such as Rio Tinto’s Oyu Tolgoi copper mine to channel sales revenues through local banks to boost Mongolia’s foreign exchange reserves.

Heavy foreign debt, a collapse in its tugrik currency and a slowdown in growth in its biggest trading partner, China, have combined to push the economy into crisis.

A member of the budget standing committee, Choindongiin Khurelbaatar, said there was no time to waste in receiving the IMF program, according to a summary of a Thursday meeting posted on the Mongolian parliament’s official website.

Analysts said the banking requirement had been a major sticking point for Rio Tinto and investors that lent US$5.4 billion to finance the expansion of the Oyu Tolgoi mine.

The expansion was already put on hold for two years because of a dispute over taxes and repeated attempts by lawmakers to change a landmark investment agreement signed in 2009 that granted the Mongolian government a 34% stake in the mine.

Nick Cousyn, chief operating officer of Ulaanbaatar-based brokerage BDSec, said the clause “could have easily resulted in another work stoppage for underground construction.”