MONGOLIA

	FY 1998 Actual	FY 1999 Estimate	FY 2000 Request
Development Assistance	$4,000,000	---	---
Economic Support Funds	$8,008,819	---	$12,000,000
FREEDOM Support Act Funds	---	$6,000,000	---

Introduction

USAID’s efforts to support Mongolia’s ongoing economic and political transition address key U.S. national interests, including promoting economic prosperity and broad-based growth as well as democracy and the rule of law. USAID/Mongolia's two strategic objectives are mutually reinforcing and strongly support the U.S. Government’s goal of helping Mongolia transform itself into a bastion of market-oriented and democratic stability in Northeast Asia. Mongolia now stands at a critical juncture in its transition to an open market and democratic society. Despite past reform successes, neither its political nor economic transformation is complete. Public institutions are still run in a top down fashion, with decisions being made in the capital with little feedback from local areas. Economic hardships remain for many, particularly in rural Mongolia. Existing hardships have been exacerbated by the financial crisis in Asia that has adversely affected worldwide demand for two of Mongolia’s principal exports – copper and cashmere. In Mongolia’s vast rural areas, economic growth is not occurring at a rate sufficient to raise living standards, extend benefits to a larger population, reduce vulnerabilities to external shocks, and ensure the consolidation of the democratic transition. Ultimately, the long-term success of Mongolia’s democratic reform depends on all segments of Mongolian society feeling they have a stake in a new economic system and are able to benefit from market reform. USAID’s assistance for Mongolia has been effective in assisting the Government to adopt policies and implement reforms, which greatly spurred economic development and growth in urban areas, particularly Ulaanbaatar, as well as facilitated democratic transition at the national level. In FY 1999, USAID began working under a new five-year strategy (FY1999-2003) which marks USAID’s movement toward increased attention to rural area growth and development.

Development Challenge

The development challenge for Mongolia remains unchanged–it is to create a stable political and economic environment that enables it to attract the domestic and foreign investment necessary for broad-based, sustainable development. Key obstacles remain to the realization of Mongolia’s development potential, specifically in rural areas: (1) undeveloped and insufficient energy supplies and transportation and communication systems impede the movement of goods, people and information throughout the country; (2) inefficient state-run institutions, including banking and capital markets, make it difficult to mobilize savings and investment and limit the productivity of resources; (3) inadequately developed judicial and enforcement services are unable to ensure the rule of law; and (4) in rural areas, inexperienced civil society organizations are unable to foster economic growth and provide feedback to government at the local and national levels on policies and programs.

Despite these obstacles, Mongolia has a number of strengths which can serve as a strong foundation for sustained development, namely (1) a broad commitment to the development of democracy and a market economy; (2) strong internal social cohesion; (3) a highly literate population; and (4) a government committed to reform and development.

USAID’s strategy for Mongolia is to help it establish a market-oriented and democratic society by (1) consolidating Mongolia’s democratic transition and (2) accelerating and broadening environmentally sound private sector growth, with a particular focus on bringing change to rural areas. To accomplish these results, USAID will establish the foundation for an effective rural society. Rural business associations, women’s groups, local chambers of commerce, herders’ associations, and progressive cooperatives will benefit from USAID assistance in selected regions and serve as vehicles to demonstrate a bottom-up approach to development heretofore untried in Mongolia. USAID also seeks to improve the effectiveness of Parliament and the judiciary so they become more accountable to the people they serve.

On the economic front, assistance will help accelerate and broaden private sector growth. USAID will facilitate the transfer to the private sector of productive assets in agriculture, industry, mining and infrastructure that are now under state control. A second key area of assistance will be to increase the efficiency of Mongolia’s financial markets through privatizing banks, establishing independent and transparent capital market institutions, and putting the national pension system on a sound financial footing. Improving the environment for business is also a critical aspect of enhancing private sector growth. USAID will ensure that Mongolia’s accelerated growth is environmentally sustainable by addressing issues critical to pasture and crop land degradation and better resource management.

Other Donors

Among bilateral donors, the United States 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. Donor attention to, and funding for, Mongolia diminished somewhat over the past year, due to competing demands for significant donor assistance to address the Asia financial crisis as well as due to the impact of the crisis on Japan, Mongolia’s major bilateral donor. The Government of Mongolia is taking steps to establish viable donor coordination mechanisms and reacted positively to USAID’s offer to help in this effort. USAID has been coordinating with the IMF and the ADB in bank restructuring and privatization and has started discussions with the World Bank on issues related to the power sector.

FY 2000 Program

USAID’s Rural Civil Society Program (RCSP) and the Farmer to Farmer (FtF) program are the primary vehicles for USAID’s rural area focus. With technical assistance and training aimed at a wide range of selected civil society organizations (e.g., women’s group, business associations, cooperatives), RCSP will develop and strengthen their institutional capabilities to become effective advocates and implementers of economic and democratic reform. RCSP will also foster cooperation between local governments and these civil society organizations to create a joint agenda for policy reform that will strengthen rural economies and civil society. FtF will use experienced U.S. volunteers to assist local organizations to develop private agriculture in Mongolia, with a focus on animal health, improved animal breeding and improved efficiency of the crop sector.

At the national level, USAID will continue to provide assistance to the government and parliament that helps ensure public awareness of parliamentary actions and key reform issues as well to help with the actual drafting of critical laws. Building on its success in developing judicial benchbooks (i.e., digests of laws and precedents), USAID will begin implementation of a more comprehensive program of judicial reform and enforcement that will include training to professionalize the judiciary.

On the economic front, USAID will continue to assist in the privatization of state-owned enterprises, increase the efficiency of financial markets, and improve the business environment. USAID intends to conclude its current programs of financial sector restructuring, pension reform, and energy sector sector restructuring in FY 2000. By supporting a joint effort with the U.S. Department of the Interior and the Philadelphia Academy of Sciences in the Lake Hovsgol region, USAID will demonstrate how development and natural resource management can be effectively joined.

MONGOLIA

FY 2000 PROGRAM SUMMARY
(in thousands of dollars)

Mission Director, Edward Birgells

USAID Strategic & Special Objectives	Economic Growth & Agriculture	Population & Health	Environment	Democracy	Human Capacity Developmnt	Humanitarian Assistance	TOTALS
SO 1: Consolidate Mongolia’s Democratic Transition - ESF	---	---	---	4,345	---	---	4,345
SO 2: Accelerate and Broaden Environmentally Sound Private Sector Growth - ESF	7,655	---	---	---	---	---	7,655
Totals: - ESF	7,655	---	---	4,345	---	---	12,000

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ACTIVITY DATA SHEET

PROGRAM: MONGOLIA
TITLE AND NUMBER: Consolidate Mongolia’s Democratic Transition, 438-SO01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $4,345,000 (ESF)
INITIAL OBLIGATION: FY 1993ESTIMATED COMPLETION DATE: FY 2003

Summary: USAID has supported Mongolia’s democratic transition from the very beginning of its democratic movement. The first phase of USAID support was designed to open the doors to the west and to allow Mongolians to study other democratic systems. The second phase of USAID assistance sought to improve the capabilities of Mongolia’s new democratic institutions and to foster the development of robust and sustainable citizen-initiated non governmental organizations in Mongolia. A third phase was entered in FY 1999 with the introduction of the Mongolian Farmer to Farmer Program (FtF) and the Rural Civil Society Program (RCSP), which will assist in the development and strengthening of new and existing market-oriented civil society associations, local governments, and private sector business and support organizations able to address issues important to the economic growth of rural Mongolia. USAID, through the International Development Law Institute (IDLI), undertook to strengthen the judicial sector by developing and training in the use of "benchbooks" for judges that will serve as reference materials and self-training guides. Support to IDLI will last through FY 1999.

Key Results: Mongolia’s overall accomplishments in embracing democracy have been profound: 1) a new constitution has been put into effect which guarantees basic democratic rights and protection; 2) a representative parliament has been created; 3) five free and fair national-level elections have been held; 4) a new, independent, judicial system has been established; 5) a vibrant community of citizen-initiated non governmental organizations has emerged and 6) the national parliament has passed legislation protecting and promoting the development of non governmental organizations. USAID assistance has played a role in all of these accomplishments and has been major contributor to the last two accomplishments listed above.

Performance and Prospects: Through support to the International Republican Institute (IRI), USAID is providing training and technical assistance to Members of Parliament and major political parties. Its efforts are focused on establishing democratic representative processes throughout Mongolia, particularly in the countryside. Funds are also being used to improve the organizational viability of political parties, especially at the provincial and local levels. USAID is actively engaged in efforts to improve the effectiveness of Government of Mongolia (GOM) ministries and the Great Hural (national parliament). Support to IRI will continue through FY 2001.

USAID is funding the rural institution development component of the Rural Civil Society Program and the Mongolian Farmer to Farmer Program. Rural institutions supportive of rural enterprise development will be fostered, such as business associations, women’s groups, local chambers of commerce, herder’s associations and cooperatives, that can provide training and support for the development of rural enterprises and agriculture, lobby local and national governments to support business growth, provide policy alternatives to rural business issues.

Possible Adjustments to Plans: USAID expects to continue assistance to the judicial and legal professions in FY 2000 to establish a competent judiciary and enforcement capacity able to ensure the rule of law in Mongolia. The program expects to include support for the development of a legal information system, the improved standards and ethical performance, and ensuring that individual protections and human rights are incorporated into the legal and judicial system. USAID’s program will focus on reform of the existing system and will not have a significant training component, but will cooperate closely with other donors in the training arena to identify training needs. Outside the formal judicial system, support may be provided to establish a Mongolian bar association and an examination system for new lawyers to increase professionalism.

Other Donor Programs: The Asian Development Bank (ADB) is engaged in an effort to improve the quality of legal training, Gesellschaft Fur Technische Zusammenarbeit (GTZ) is supporting training of judges. The Soros Foundation may also be entering this field. No other donor is taking the systematic approach to rural development and civil society building that USAID is undertaking.

Principal Contractors, Grantees, or Agencies: USAID implements this activity through the following partners: The International Republican Institute, the International Development Law Institute, Mercy Corps International, and Agriculture Cooperation Development International/Volunteers in Overseas Cooperative Assistance (ACDI/VOCA).

Selected Performance Measures:

1. Civil society organizations providing services essential to rural growth.
2. Public policies changed consistent with rural civil society organizations advocacy.
3. Strategy for judicial development approved and implemented.
4. Public confidence in judiciary improved.
5. Parliament develops mechanism for incorporating public input into legislative process.

* Baseline and target indicators have not been developed for this program but will be within the next six months

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ACTIVITY DATA SHEET

PROGRAM: MONGOLIA
TITLE AND NUMBER: Accelerate and Broaden Environmentally Sound Private Sector Growth, 438-SO02
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 2000: $7,655,000 ESF
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2003

Summary: The Economic Policy Support Project is the principle vehicle by which USAID is expanding its economic growth program under its new five year strategy (1999-2003). EPSP seeks to increase the standard of living of the people of Mongolia and to improve economic and social indices by assisting the Government of Mongolia's (GOM) transition from a centrally planned economy to a true private sector-led, market oriented economy. The project provides technical assistance, training and other inputs to establish sound, growth-oriented market-economy policies and practices, and to develop and strengthen select public and private-sector institutions that will help develop and sustain a market-oriented economy.

All Mongolians are benefiting from lower inflation and a more vibrant urban economy, for which USAID can fairly take partial credit. All Mongolians promise to benefit from the achievement of future activity goals including improved pensions, the development of a commercial power sector, and a better working financial sector. Activities in rural Mongolia promise to establish linkages between economic growth, improved environmental quality, and increased democratic participation.

In addition to the macroeconomic reform assistance referred to above, the following other activities are being supported:

• USAID has begun providing assistance to the Mongolian State Property Committee for its privatization program. Over the next three years USAID will assist in the privatization of over 200 companies. Up to twelve of these will be suitable for foreign investors. --Sixteen Mongolians are benefiting from long-term economics and business training in the United States. In the future, USAID plans to broaden this training to cover our democracy as well as economic growth strategic objectives.
• Through the U.S. Customs Service, USAID will provide assistance to the Mongolian Customs to bring it to international standards of effectiveness and efficiency.
• USAID is funding the activities of a Global Technology Network in Mongolia (GTN-Mongolia). GTN-Mongolia assists Mongolian firms seeking to improve production efficiencies by adopting U.S. technology or to establish business relationships with U.S. companies. The resources of the International Executive Service Corps (IESC) complement the program.
• Finally, USAID is funding two sustainable rural development activities. One is the Mongolia Farmer to Farmer (FtF) which is focusing on animal health, improving animal breeding stock, and improving the productivity of the crop sector. In the crop sector FtF will begin demonstration programs on proving the technical and economic feasibility of "no-till" agriculture, contract seed production, and cooperative development. The adoption of "no-till" methods of cultivation will have both economic and environmental benefits to Mongolia. The other program is an effort to develop the Lake Hovsgol region of Mongolia into an effective protected area that will lend itself to local economic development.

The hallmark of USAID assistance under EPSP has been its speed, flexibility and high quality. Senior Mongolian government officials have consistently identified EPSP as the single most important technical assistance activity in Mongolia. EPSP fully deserves credit for helping the GOM to go further, faster and achieve higher quality reform outcomes than would have been possible without the project

Key Results: With USAID provided advice and guidance, the Democratic Union Coalition has developed and is implementing a forward-thinking, macroeconomic reform agenda. Under this reform agenda, an improved energy pricing structure has been put in place which has enabled the Mongolians to recover costs of energy production and distribution; and bank restructuring, pension reform, capitol market development, and the privatization of state-owned enterprises have begun. The impact of this assistance has helped to bring down inflation and keeping it in check.

Performance and Prospects: USAID assistance under EPSP has played a key role in organizing the macroeconomic reform agenda of the Democratic Union Coalition. In the early days of the Coalition, EPSP organized a series of Economic Policy Workshops, which led to the development of a comprehensive economic reform agenda. EPSP later assisted the GOM to implement the agenda. Key achievements include: the setting of new and higher electricity, heat, coal and petroleum prices resulting in a more viable energy sector; the restructuring of two unviable banks and the development of a new banking strategy. Recently, an Energy Policy Workshop has helped the GOM in determining a course of action for energy privatization and commercialization. A similar workshop is planned for bank restructuring in FY 1999. EPSP has also played a key role in training a core cadre of economic analysts, capable of implementing the GOM’s economic growth objectives. EPSP provided assistance in the legislative drafting for the GOM’s new pension program and will provide the assistance needed for the Ministry of Health and Social Welfare to implement the new program. Similar assistance is anticipated for energy policy reform and financial sector bank reconstruction.

Possible Adjustment in Plans: Further assistance in the areas of macroeconomic reform, pensions, energy sector commercialization and financial sector restructuring may be undertaken, depending upon the activities of other donors and the level of need. In addition, efforts to help the Mongolian private sector link with U.S. technology and establish joint ventures with U.S. companies may continue depending on results achieved through FY 2000.

Other Donor Programs: The International Monetary Fund, the World Bank, the Asian Development Bank, the United Nations Development Program and the Japan International Cooperation Agency provide technical assistance in the fields of economic policy and public administration.

Selected Performance Measures:

1. Increased share of GDP attributable to private sector.
2. Independent and transparent banking, capital market and pension system resulting in increased savings and investment.
3. Effective energy regulatory authority established.
4. Increased value-added livestock production.
5. Increase in number of profitable, rural businesses and cooperatives.
6. Number of farmers adapting no-till agricultural practices.
7. Sustainable tourism established in Lake Hovsgol.

*Baseline and target indicators have not been developed for this program but will be within the next six months.

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