MONGOLIA

>> Regional Overview >> Mongolia Overview

Development Challenge Other Donors FY2001 Program / Activity & Budget Information Summary Tables Program Summary Work Force Data Program/Sector Summary USAID Search: Mongolia Previous Years' Activities 2000, 1999, 1998 Last updated: 51     Introduction United States 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 between two of the world's largest nations, Russia and China, it is attempting to reform both its economic and political system at the same time. Mongolia has been receptive to external advice and ideas and it has been willing to undertake the difficult steps necessary to ensure its rapid transformation to a market-oriented democratic society. Mongolia's reform government, under the Democratic Union Coalition, has made 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, despite severe drops in the world prices of Mongolia's key exports: copper, cashmere and gold. Mongolia's total external debt at the end of 1998 was $715 million, which equaled approximately 75% of gross national product (GNP). Economic growth progressed at approximately 3.5%, continuing the positive growth trend begun in 1995. The 1999 inflation rate was 10%, marking the second year in a row with moderate price increases, compared to hyper-inflationary rates earlier in the decade. Most impressive, and a direct result of the sound reform program of the Democratic Union Coalition, has been the growth of the private sector. The private sector share of gross domestic product (GDP) has grown from 50.9% in 1995 to 68.5% in 1998, and is certain to exceed 70% in 1999. Private sector value-added grew by 12.7% in 1997 and 15.0% in 1998, while the inefficient public sector declined significantly. The nature of the private sector is also changing. New firms are emerging. For example, in 1998, textile and garment exports were larger than mineral exports for the first time in Mongolian history. Due to the relative stability of Mongolia, some American firms have established operations here, using Mongolia as a base for operations in Siberia. This modest trend is expected to continue as firms begin to realize the strategic location of Mongolia, vis-a-vis its powerful neighbors. Poverty is still an important issue. However, there is general agreement that poverty rates appear to have stabilized, with about one-third of the population being defined as poor in statistical terms. Poverty has declined in Ulaanbaatar and in some rural areas as well. Furthermore, official statistics do not capture the impact of the vibrant informal private sector on poverty. This sector is emerging as a major engine of growth and employment and may account for up to a third of GDP. Other key social indicators, including maternal and infant mortality, school enrollment rates and literacy rates have improved over the last four years. Following privatization of housing at the end of 1996, more than 80% of apartments in Ulaanbaatar are now privately owned, and booming housing and housing service markets have emerged. In 1999 two large state-owned banks were closed and a third, which plays a vital role in the rural economy of Mongolia, is in the process of being restructured with USAID assistance. Significant progress was also made in rationalizing the power sector, with important legislation presented to the Parliament at the end of 1999. The Government of Mongolia (GOM) has, for the first time, prepared two large state-owned enterprises for sale to foreign investors by international tender. The decision to proceed with the sale awaits parliamentary approval. In addition, significant steps were taken in 1999 to improve the efficiency of public expenditures, including pension reform and reforms in the education and health sectors. The International Monetary Fund (IMF) has strongly endorsed the government's bold and successful economic reforms. The Development Challenge Specific obstacles to growth include: (1) undeveloped energy supplies, transportation and communications systems which 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 insure the rule of law; and (5) inexperienced civil society organizations which 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. Despite these problems, development activities in Mongolia are able to build upon a number of strengths. These include: (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 U.S. 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. The GOM's reform program has focused on sound macroeconomic management of the economy and the reform of key sectoral issues such as banking, the power sector, and pension reform. In addition, there is growing bipartisan concern about the need to establish an independent and ethical judiciary and the need to extend the reform program to rural Mongolia. The Mission'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 has resulted in clear policy decisions by the government and is now providing other donors the basis to provide assistance. Mongolia will hold parliamentary elections in June 2000. USAID expects that any new government will continue with a reform agenda, particularly since major donors such as the IMF and World Bank are now taking a more proactive role in insisting on reform. However, USAID and the Embassy will undertake a very careful analysis of the reform potential of the new government and will make recommendations concerning future levels of funding and programs based on the new government's platform for fostering the strategic objectives necessary for Mongolia to develop a democratic and market based society. Other Donors Overall development assistance to Mongolia averaged $191 million per year (disbursements) between 1991 and 1998. Slightly over half of the assistance has been in the form of grants with the remainder in loans. Based on figures from the June 1999 Consultative Group Meeting, the U.S. currently ranks third, behind Japan and Germany, in the amount of its grant assistance to the Government of Mongolia. The IMF, the Asian Development Bank (ADB), the World Bank, and the Government of Japan also provide substantial development-related loans to Mongolia. At the June 1999 meeting, USAID supported GOM and World Bank proposals for the development of a database to track development assistance as well as plans for the creation of a strategic framework to assist in the coordination of donor assistance. The GOM has begun to implement these systems. Country Background Information Resources   CIA Factbook Library of Congress National Geographic Country Maps State Dept. Country Information

:  :  :  :  :  :  :  :  :  :  What's New : FOIA Requests : Privacy Policy : Email This Page : Plug-ins : FAQs : Help Desk : Contact Us : Site Map Last Updated on: November 17, 2000