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Mongolia
>> Regional Overview >> Mongolia Overview
Summary Tables
Program Summary
Previous Years' Activities
2001, 2000, 1999, 1998Last updated: 53
Introduction
Assistance to Mongolia supports U.S. interests by fostering the development of a free-market economy and a stable, democratic government. As a small buffer state located between two of the world's largest nations, it contrasts with its neighbors, as well as many other Asian countries, as it is attempting to reform both its economic and political systems at the same time. Mongolia has been receptive to external advice and ideas and has been willing to undertake the difficult steps necessary to ensure its rapid transformation to a market-oriented democratic society.
Mongolia held parliamentary elections in July 2000. The elections led to the decisive victory of the Mongolian Peoples Revolutionary Party (MPRP), which was in power during the communist period, over the ruling Democratic Union Coalition. Despite the change in government, a broad consensus remains across the political spectrum on the need for reform in Mongolia, and the new government is expected to commit itself to pursue policies that will encourage the continued development of a democratic, market-oriented society in Mongolia.
Mongolia's reform governments have been able to make important economic progress despite serious internal political problems. Sound macro-economic policies, supported by the donor community, have allowed Mongolia to weather the worst of the Asian financial crisis. Nonetheless, preliminary estimates show that Mongolian gross domestic product rose by only 1.1% in 2000, well below the 3.5% average growth rate Mongolia has experienced since the mid-1990s. This reflects a 21.4% decline in agricultural sector value-added as a result of the loss of livestock in the winter storms. Losses this year will also be significant. This will pose an extremely serious problem for the medium-term growth of Mongolia and will drive thousands of herder families into poverty. Agricultural sector value-added comprises approximately 40% of Mongolian GDP, almost all of it from the livestock sector. The steady but unsustainable growth of herds in recent years has contributed significantly to overall economic growth in the past.
The non-agricultural private sector value-added figures provide a very different and impressive picture. Real value-added in the non-agricultural private sector grew by 22.1% in 2000, up significantly from the average 15.3% growth of the previous four years. This reflects strong continued growth in private sector transportation and communication services; the ever-increasing dominance of private firms in trade and domestic commerce as the state-owned economy continues to lose market share; and impressive growth in the private provision of banking services and social services, such as private schools and healthcare services. The banking sector has demonstrated a dramatic turnaround, thanks in great part to USAID assistance in restructuring the sector. In 2000, the entire banking sector showed a profit of approximately $9 million, compared with a loss of approximately $8 million in 1999.
One especially fortuitous development was the rapid rise of commodity prices, especially of copper and cashmere. The former led to a significant increase in government revenues and reduced the inflationary effects of a sharp increase in GOM spending ahead of the national election. The rise in cashmere prices helped to raise incomes in rural areas. This, along with the impact of the USAID-funded Market Watch, which provides biweekly reports of commodity prices, was responsible for a significant redistribution of wealth from traders to herders, as herders refused to sell below prices quoted by Market Watch.
Development Challenge
Specific obstacles to growth include: (1) undeveloped energy supplies, transportation and communications systems that contribute to fragmented domestic and international markets; (2) ineffective public institutions, which operate in a top-down, dictatorial manner within a closed and protective environment; (3) inefficient state-run institutions, which drain public revenues and limit the productivity of resources; (4) inadequately developed judicial and enforcement services unable to ensure the rule of law; and (5) inexperienced civil society organizations that lack the ability to foster economic growth and provide feedback to national and local levels of government. Without addressing these issues, long-term growth and democratic government cannot be sustained.
Two additional factors have emerged over the past year. First, the combination of severe winter storms, drought, and land misuse have resulted in a significant loss of animals and a resultant loss of the capital stock of the country. This may impact the accelerated economic growth rates anticipated in the USAID strategy. Second, the landslide victory of the MPRP, winning 72 out of 76 parliamentary seats, dealt a severe blow to the parties of the former Democratic Union Coalition. The parties have reorganized under the banner of the Mongolian Democratic Party in order to participate in the presidential election scheduled in May. The success of the reorganization will depend in part on the party's success in the presidential election. Therefore, the jury is still out on whether a successful opposition to the MPRP has been established-a critical issue for the future of electoral democracy in Mongolia.
Nonetheless, development activities in Mongolia have been able to build upon a number of strengths, including: (1) a broad commitment to the development of democracy and a market economy among members of Mongolian society; (2) a literate human resource base; (3) a high degree of internal social cohesion; and (4) a government committed to reform and development. The assistance provided by the United States is especially valued because America is seen as a vigorous advocate of democracy and market-oriented growth with no vested interests in Mongolia.
USAID's strategy for Mongolia is to help establish a market-oriented and democratic society by consolidating Mongolia's democratic transition and accelerating and broadening environmentally-sound private sector growth, with a particular focus on bringing change to rural areas. USAID's strategy of private sector-led economic growth is a vital part of the Embassy's Mission Performance Plan. USAID's approach has been to define areas where U.S. assistance can foster the reform program and to work on issues that other donors are not in a position to address. This approach has led to some clear successes for the USAID over the last year, particularly in the areas of judicial, banking, and energy reform.
Other Donors
Based on figures from the June 1999 Consultative Group Meeting, the United States currently ranks third, behind Japan and Germany, in the amount of its grant assistance to the Government of Mongolia. The International Monetary Fund (IMF), the Asian Development Bank (ADB), the World Bank, and the Government of Japan also provide substantial development-related loans to Mongolia. The IMF, the World Bank, the ADB, Germany, the United Nations Development Program (UNDP), and Japan have active programs to promote economic growth. The World Bank, ADB, Germany, UNDP, and the Soros Foundation all have active programs to promote democracy.
FY 2002 Program
In 1999, USAID began a new five-year strategy to help Mongolia consolidate its transition to democracy and accelerate and broaden sustainable private sector growth. The new MPRP Government has adopted a strong economic reform program and appears committed to democracy. At a recent party conference of the ruling MPRP, the leadership of the reform wing of the party, headed by Prime Minister N. Enhbayar, was reaffirmed. Accordingly, USAID expects to continue to implement the program outlined in the current country strategy.
Under its economic growth program, USAID is funding programs to: (1) transfer productive assets to the private sector; (2) increase the efficiency of financial markets; (3) improve the business environment; and (4) improve management of natural resources. The program places special emphasis on the development of rural Mongolia, particularly the Gobi region.
With the passage of a new energy law by Parliament in February 2001, USAID expects to provide long-term support to develop an independent regulatory agency and to assist the GOM with the restructuring of the sector through FY 2002. In the same month Parliament passed privatization guidelines that presented a four-year strategy for privatization in Mongolia. Immediately thereafter, the Cabinet agreed to the privatization of the three "most valuable companies" (MVCs) that have been the focus of USAID's initial efforts in this area. It is anticipated that other MVCs will be put on the block in the future and, accordingly, USAID expects to continue providing assistance in this area through FY 2002. USAID also anticipates providing further assistance to the banking sector, and in the areas of tax policy and debt management.
In FY 2002, USAID will continue its efforts to promote competitiveness in the Mongolian economy. The Competitiveness Initiative focuses on three critical areas: non-traditional meat exports, cashmere marketing, and tourism. The Initiative is also working to create public/private sector cooperation on competitiveness issues.
USAID's Gobi Regional Growth Initiative (GREGI) and the Farmer to Farmer (FtF) program will continue to be the primary vehicles for USAID's rural area focus. In the past year GREGI has been refocused to more comprehensively address herder management and land use issues. FtF will continue to help develop private agriculture, with a focus on animal health, improved animal breeding, and improved efficiency of the crop sector.
USAID will continue its efforts to broaden and deepen democratic reform. Resources will be used to establish the foundation for an effective rural civil society and to improve the effectiveness of the parliament and the judiciary. USAID began its new Judicial Reform Program in March 2001. Initial program activities will focus on strengthening court administration and case management, developing a centralized training system for legal professionals, improving coordination and collaboration among Mongolia's justice system agencies, developing a system of legal qualifying standards, and strengthening and enforcing ethical standards among judiciary and legal professionals. The parliamentary strengthening component of this activity is under review. The International Republican Institute (IRI) is now developing a new program of parliamentary support within the context of activities of other donors. In addition, because of MPRP's lopsided victory in the elections, IRI is now reviewing its role in political party development. USAID will provide funding to IRI for one year to attempt to develop appropriate programs and responses to the changing political climate. With civil society building being undertaken through GREGI and FtF, USAID does not anticipate other major programs in the democracy area.
USAID will continue its U.S. degree program to support objectives in both economic growth and democracy. USAID plans to provide modest support for Mongolia's participation in Eisenhower Foundation programs beginning in FY 2001; this support will last through the strategy period. USAID will also ensure that Mongolia's accelerated growth is environmentally sustainable by addressing issues critical to pasture and crop land degradation and better resource management, particularly of Hovsgol National Park. Urban environmental issues also will be addressed through USAID's regional United States-Asia Environmental Partnership.
In addition to the bilateral and regional USAID programs, the Bureau for Humanitarian Response is helping to meet humanitarian needs arising from the winter 2000-2001 snow emergency.
Activity Data Sheets
- 438-001 Accelerate and Broaden Environmentally Sound Private Sector Growth
- 438-002 Consolidate Mongolia's Democratic Transition
Country Background Information Resources
CIA Factbook
Library of CongressNational Geographic Country Maps
State Dept. Country Information
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Last Updated on: May 29, 2002 |
