Note: This document may not always reflect the actual appropriations determined by Congress. Final budget allocations for USAID's programs are not determined until after passage of an appropriations bill and preparation of the Operating Year Budget (OYB).
MONGOLIA
FY 1998 Economic Support Fund Request .......... $7,000,000 Introduction
In 1990, Mongolia broke with the Soviet Union after nearly 70 years of dependence. Without its $900 million a year subsidy and with an entrenched Soviet-style economy still in place, Mongolia's gross domestic product declined 25% from 1990 to 1993. Mongolia has made significant progress in restructuring its government and economy and is ahead of most former Soviet republics that experienced similar economic calamities. While Mongolia's economic transition has not been smooth, it has progressed economically and politically in the past two years. Mongolia must surmount many formidable hurdles before it can sustain its own growth, while creating democratic institutions.U.S. assistance to Mongolia supports U.S. interests by fostering a free-market economy and democracy. As a small buffer state situated between Russia and China, two of the most important countries to U.S. interests, Mongolia stands in sharp contrast in that it is successfully reforming both its economic and political system. It has been receptive to external advice and ideas and willing to make difficult changes. It also is a small but growing market for U.S. capital goods and a potential source of minerals.
The Development Challenge
Mongolia is a country of 1.565 million square kilometers with some 2.2 million people in northeastern Asia, between China and Siberian Russia. Mongolia is sparsely populated but highly urbanized, with more than 50% of the population living in the country's three largest cities. While the IMF estimates a real gross domestic product growth of 6.3% in 1995 (up from a negative 1.3% in 1993 and 2.4% in 1994) and an annual rate of inflation of 53% (down from as much as 320% in 1993), the battle to achieve sustainable growth over the medium term still demands urgent attention. Despite the relaxation of price controls over the last 18 months, the prices of some products are still well below costs. Electricity tariffs, for example, are now half of those in most Asian countries. Similarly, housing rents are too low to compensate for even the maintenance work done by the public sector.
USAID has many opportunities to support Mongolia's emerging market economy. At the Government of Mongolia's request, USAID works directly with the Prime Minister's office, other policy makers, and bankers to enable the Government to establish and implement sound, free market practices. This assistance helps the public and private sector institutions that will make Mongolia a free market economy.
Mongolia is now a fledgling democracy and large sections of the populace seem committed to the concept of political pluralism. However, the concept of democracy and its practical implications are not well understood by the public. While many of the current political elite appear committed to democracy, its future is not yet assured given the newness of democratic practices and the absence of adequate checks and balances in the system. Through the Asia Foundation, the International Republican Institute, and other partners, USAID has provided selective training to the judiciary, and strengthened the capacity of democratically oriented parties, assisted in the development of civic organizations, and has encouraged greater participation of women in politics. The victory of the opposition in the 1996 national elections has placed the Government in non-communist hands for the first time in 70 years; however, considerable assistance is needed to restructure political institutions, broaden the role and capacities of civil society, establish democratic norms, and carry out further policy reforms.
One of the many factors affecting Mongolia's growth is the continuing energy crisis. The power plants and the coal mines are inadequately managed and maintained. They lack equipment, materials and trained personnel. Central heating services in the cities, essential for life in modern buildings during the severe winters, are reduced significantly and on the verge of collapse. USAID provides critical spare parts, technical assistance, and training (both in the United States and in Mongolia) in power plant operations and management, while more permanent infrastructure, financed by the international development banks and other donors, is being planned or implemented.
Other Donors
The International Monetary Fund, the World Bank and the Asian Development Bank (ADB), often acting in concert, have worked with the Government of Mongolia to accomplish many of the key economic reforms taken to date and to establish detailed policy agendas that will guide much of the reform program over the next three years. In addition, the World Bank and the Asian Development Bank are working on sectoral policy agendas, including transportation and energy--both critical to ensuring the success of the transition to a market economy and democratic government. As a follow-on to USAID emergency energy assistance, other donors are now providing most energy sector commodity and renovation assistance. In 1995, the World Bank provided about $35 million to the mining sector to ensure that the coal mines are producing and, thus, supplying energy to the urban economic areas. The Asian Development Bank upgraded a major power plant at a cost of approximately $35 million, and will build roads from the mining areas to the urban areas. The International Fund for Agricultural Development (IFAD) is organizing a $5.04 million loan to combat rural poverty, while the Germans and the ADB are collaborating with USAID in the area of judicial training.In 1995 Mongolia received $210 million in overseas development assistance (ODA). The principal donors, who together contributed 75% of this ODA, were the ADB, with $60 million, Japan, with $63 million; and the World Bank, with $35 million. Besides USAID, other donors include the United Nations Development Programme, Germany, the Netherlands, Australia, and France.
FY 1998 Program
USAID seeks to support Mongolia's emerging market economy while fostering new democratic institutions. An important aspect of Mongolia's economic recovery is providing emergency and long-term solutions to its continuing energy crisis.Agency Goal: Encouraging Broad-based Economic Growth
Strategic Objective 1: A policy and institutional framework conducive to rapid private sector expansion created
After years of negative growth, Mongolia's economy has turned around, with strong growth in GDP, industrial output (20.7%), exports (22%) and budget surplus (4.1% of GDP). While the transition to a market economy has been difficult, the economy has been growing for the past two years. However, more than 20 % of the population live in poverty, and unemployment -- unknown during the Communist era -- is at least 9%. Much of the credit for the macro-level improvements is attributable to the Government's willingness to embark on rapid economic policy reform. USAID has enabled Mongolia to implement economic reform by funding a policy advisor in the Prime Minister's Office to assist in the development of a macroeconomic plan, later endorsed by the IMF. USAID-funded research led to a decision to significantly expand privatization efforts. USAID technical assistance helped Mongolia arrive at a solution to its enormous Russian ruble debt burden in a way that does not hamper future economic development. Training by U.S. bankers to the nascent banking community has helped develop sound banking procedures and internationally-compatible standards.
USAID's objective to encourage broad-based economic growth anticipates the following results:
* Improved macroeconomic management;
* Improved economic policy analysis in both the public and private sectors;
* Improved asset and credit management among small commercial banks.
Promoting the development of Mongolia's nascent private sector is USAID's most important support for a successful transition to a market economy. It is the key to the ultimate success and sustainability of the Mongolian economic restructuring effort. Failure of the private sector to deliver progressively stronger results will enormously increase the risk that Mongolia's economic and political reform efforts will fail. Accelerated private sector development will generate additional employment opportunities and increase the incomes of owners and workers. Successful performance will generate additional investment and employment which, in turn, will contribute to broad-based and sustainable economic growth. Consumers with increased disposable income will spend more, further stimulating the economy.
USAID will assist the Government of Mongolia to establish and implement sound, growth-oriented, market economic policies and practices. USAID will strengthen public and private sector institutions that will help sustain a market economy; provide technical advisory services to the Vice Prime Minister's Office; provide technical training in the United States and third countries to the public and private sector; provide short-term training to the banking sector and lastly, provide academic training in the United States in the areas of banking and business development as well as assistance to the Mongolian legal profession and the Parliament.
Special Objective: Emergency support provided to the Mongolian power production system
Energy is important to prospects of economic growth in Mongolia. Given the severity and long duration of the winter season in Mongolia, adequate energy is a key concern. Without continued adequate heat and electricity during the winter months, both the shift to market economics and the process of democratization are threatened.
USAID's activities under this specific objective will contribute to the following results:
*
Minimum, reliable power generated for household, commercial and industrial purposes;*
Disruption averted to the energy production system;* Sustainable improvements to the energy sector; and
* Emergency energy assistance no longer required.
Mongolia's growth has been seriously hampered by its outdated and inefficient energy system. During FYs 1993-1996, USAID's emergency energy assistance delivered enough spare parts, equipment and materials to keep a vital power plant and coal mines from collapse. USAID's leading role in energy assistance helped mobilize other donors to similar efforts and to plan and initiate interim and long-term capital improvements which will eventually restore adequate energy services for Mongolia's sustainable economic growth. USAID FY 1998 energy sector support will improve system management and operations and will help make efficient use of growing capital project investments from other donors.
Agency Goal: Building Democracy
Strategic Objective 2: Gains in the transparency, accountability, competency, and responsiveness of Mongolia's primary institutions of democracy consolidated
Mongolia is still very much a country in transition and risks setbacks without focused support, particularly in the areas of civic education, an independent judiciary, and operations of elected representative bodies. Juxtaposed against the concurrent economic transition and the resultant breakdown in some social support systems which Mongolians had come to expect, democratic reforms can be seen as somewhat at risk. Hence, the process of building a democratic society is at a critical point, and donor assistance is essential to see the reforms through.
USAID's strategic objective of consolidating Mongolia's democratic instititutions has three results:
* A robust and self-sustaining community of indigenous NGOs exists;
* And independent court and judicial system make and disseminate informed legal rulings;
* The electorate is given access and a voice in national and local legislatures.
USAID has supported the Mongolian democratization process primarily in the areas of strengthening the democratic party capacities and judiciary, assisting in the development of citizen initiated non-governmental organizations, and encouraging greater participation of women in politics. The June 1996 elections, won by the democratic opposition, have given urgency to instituting government accountability, citizen participation, and training political parties in democratic governance. Although judicial reform and capacity building remain a priority, future activities in this sector will need to be closely coordinated with other donor programs to ensure consistency, and assessed for effectiveness.
The Asia Foundation (TAF), which has worked in Mongolia since 1990, has carried out a broad set of activities aimed at training legislative and judicial branches, as well as the NGO sector. The TAF program is now focussed on assisting NGOs to engage in policy advocacy and link with rural communities, carry out civic education programs, and support policy reforms that strengthen the role of civil society.
Mongolia's fledgling democracy, following decades of communist rule, still features deep differences between urban and rural society, a lack of information available to the citizenry (especially in the rural areas), and a lack of experience with the norms of parliamentary democracy. The International Republican Institute (IRI) has been instrumental in the development of a successful political strategy for the democratic coalition. It has implemented capacity building programs to enable democratic parties to communicate their messages and establish a defined reform agenda. It has now initiated democratic process educational programs for the formerly ruling Mongolian Peoples Revolutionary Party. IRI's institutional experience and strength will be highly useful in assisting the parties to strengthen and train provincial and local level party organizations, and assisting parliamentarians to set standards for staff and constituency service.
MONGOLIA
FY 1998 PROGRAM SUMMARY
Encouraging Economic
Growth
Stabilizing Population
Growth and
Protecting Human Health
Protecting the
Environment
Building Democracy
Providing Humanitarian
Assistance
Total USAID Strategic Objectives 1. A policy and institutional framework conducive to rapid private-sector expansion created. 3,000,000 3,000,000 2. Gains in the transparency, accountability, competency, and responsiveness of Mongolia's primary institutions of democracy consolidated. 2,000,000 2,000,000 USAID Special Objective: 1. Support provided to the Mongolian power production system.
2,000,000
2,000,000
Total
Economic Support Funds
5,000,000
0
0
2,000,000
0
7,000,000
USAID Representative: (A) Sidney Chernenkoff
ACTIVITY DATA SHEET
PROGRAM: MONGOLIA
TITLE AND NUMBER: Gains in the Transparency, Accountability, Competency and Responsiveness of Mongolia's Primary Institutions of Democracy Consolidated, 438-SO02
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $2,000,000 ESF
INITIAL OBLIGATION: FY 1993; ESTIMATED COMPLETION DATE: FY 2000
Purpose: To consolidate gains in the transparency, accountability, competency and responsiveness of Mongolia's primary institutions of democracy.
Background: Mongolia is presiding over an emerging market economy, and a large portion of its populace is committed to democracy. Strong and influential segments of society, however, are tied to behavior patterns from pre-democratic times. The country is relatively isolated geographically as well as ideologically. Understanding of the prevailing trends in political development and thought throughout the world are very limited. Foreign influences have historically been China, Russia, and the Soviet Union. In addition, accurate information on political processes and governmental actions are generally not available. Information is poorly organized and does not effectively reach the rural populations. This situation is compounded by a lack of transparency, which is a residual from past communist practices. There are frequent and recurrent incidents of governmental officials refusing to provide timely and accurate information to the public, even while under obligation of law to do so.
Democratic reforms since 1990 have been significant. In the recent June 1996 national elections, the democratic coalition won a majority of seats in the new parliament for the first time. Nonetheless, while the general political situation remains encouraging, these gains are vulnerable to slippage. Authoritarian recidivism is an ever-present danger. The former communist Mongolian People's Revolutionary Party (MPRP) recently won majorities in 70% of the provincial assemblies. There is also a growing threat to national integration as the cultural gap between urban and rural populations continues to grow.
USAID Role and Achievements to Date: USAID activities significantly contributed to the institutionalization of democracy in Mongolia. The first phase of USAID support, a direct grant to The Asia Foundation (TAF), began in 1991 and opened Mongolia's doors to the West. The grant was used to organize seminars in Mongolia and study tours abroad for key government and non-government leaders to learn about democratic systems in the U.S., Europe, and democratic neighbors in Asia. Other contributions included the International Republican Institute (IRI) activities during the 1996 elections, the creation of an independent judiciary, and seed support to the NGO community.
Description: USAID's democracy activities in Mongolia are mainly channeled through TAF. Presently, the Foundation is working to enhance NGOs' capability to serve as a potential firewall against governmental encroachments on civil liberties and political freedom. TAF will also continue to strengthen civil society, especially beyond Ulaanbaatar. Other USAID-funded groups include IRI, which will assist major political parties to strengthen their organizations in order to understand better their responsibilities, work more effectively with central, provincial and local governments, and improve constituency services.
Host Country and Other Donors: Several other donors are very actively involved in commercial and general legal reform and education. The Asian Development Bank is initiating a sector-wide trainingprogram. Gesellschaft Fur Technische Zusammenarbeit (GTZ) is supporting major training of existing judges.
Beneficiaries: All of the Mongolian electorate - those individuals on whose behalf a democratic state is supposed to govern - stand to benefit from these activities, especially young people and women who are expected to play an increasingly important role in determining Mongolia's future.
Principal Contractors, Grantees, or Agencies: USAID implements the program through NGOs, including the Asia Foundation and the International Republican Institute, and a private U.S. consulting firm, ARD/Checchi.
Major Results Indicators:
1.
A robust and self-sustaining
community of indigenous NGOs exists2.
An independent court and judicial
system makes and disseminates informed legal rulings3.
The electorate is given access and
a voice in national and local legislatures
ACTIVITY DATA SHEET
PROGRAM: MONGOLIA
TITLE AND NUMBER: Support Provided to the Mongolian Power Production System, 438-SP01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $2,000,000 ESF
INITIAL OBLIGATION: FY 1992; ESTIMATED COMPLETION DATE: FY 2000
Purpose: To increase the reliability of the Ulaanbaatar electricity and district heating systems through the provision of spare parts, commodities and limited technical assistance.
Background: In 1991, the Russians withdrew their support to operate the Mongolian energy systems when much of the equipment was becoming unserviceable. Simultaneously, the country lacked the foreign exchange to purchase critically needed spare parts in international markets. Thus, USAID's strategy was to help the Mongolians maintain existing levels of power production and improve the reliability of their energy systems.
USAID Role and Achievements to Date: The USAID project provided critical spare parts, technical assistance and training to shore up energy production at Mongolia's key power plants and coal mines. Over the past three years, approximately $20 million has been spent on needed spare parts and equipment, such as coal conveyor belts, truck tires, boiler components and other items. This equipment enabled Mongolian coal mines and power plants to maintain energy production services. In addition, Mongolians were trained in power plant operations and management.
Although USAID made a substantial investment and achieved its objective of sustaining energy production over the recent winters, the power plants, district heating systems and coal production facilities are old, heavily depreciated and require major capital investments to provide replacement capacity. Meanwhile, the same potential of system breakdown exists for this winter and following winters. Our response is to focus on emergency measures while encouraging other donors to make the necessary capital improvements to maintain immediate energy production.
Description: This project will assist the Government of Mongolia (GOM) to maintain energy production through the winters of 1996/1997 and 1997/1998. Commodities, including fuel oil and tires, will be provided as well as critical spare parts to maintain operations at the coal mines and power plants. Technical assistance will be provided to procure and install these materials. After addressing these critical needs, limited remaining funds will be used to address longer term needs such as privatization of the energy system.
Host Country and Other Donors: The GOM has increased electricity and coal tariffs by 60% and 45%, respectively, during 1996; however, this still does not cover the cost of operations. The Asian Development Bank (ADB) is providing technical assistance to improve the financial management of the Mongolian energy utility.
The World Bank is considering a loan to improve coal mining operations while the Government of Japan and ADB are addressing some of the needs at the power plants ($80 million of the estimated need of $110-135 million required to rehabilitate boilers). Two ADB loans ($10 million in 1996 and a programmed amount of $40 million for 1998) will also improve the district heating systems.
Beneficiaries: Beneficiaries are all residents who are serviced by Ulaanbaatar electricity and district heating systems.
Principal Contractors, Grantees, or Agencies: USAID implements the program through the GOM Ministry of Infrastructure and a U.S. contractor, Morrison-Knudsen.
Major Results Indicators: Baselines Targets
1.
Disruption averted to the energy No disruptionproduction system
2.
Sustainable improvements to the energy sectorTBD following phase out of emergency assistance
ACTIVITY DATA SHEET
PROGRAM: MONGOLIA
TITLE AND NUMBER: Mongolia Economic Policy Support Project,438-SO01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: FY 1998: $3,000,000 ESF
INITIAL OBLIGATION: FY 1994; ESTIMATED COMPLETION DATE: FY 2000
Purpose: To (a) provide technical assistance and carefully targeted training to both the Government of Mongolia (GOM) and Mongolia's private sector that will facilitate the identification and adoption of growth-oriented economic policies and (b) develop and/or strengthen those public and private institutions which can support and sustain a market-oriented economy.
Background: Mongolia's lengthy relationship with Soviet-style economics and the initial absence of western assistance in transitioning to market-oriented principles leaves a substantial agenda of macro-economic policy reforms. Unlike most developing countries, Mongolia is confronting the task of creating entirely new economic structures. The degree to which Mongolia successfully implements these policies will establish the direction and pace of its economic development for years to come. USAID's extensive experience with economic policy reform, coupled with the GOM's desire for U.S. technical assistance and training efforts affords an opportunity to make a high return investment in this country's social and economic development.
Mongolian macroeconomic reforms, such as economic policy, laws and regulations, are incomplete in all of the critical economic sectors such as privatization, banking, taxation, foreign and domestic investment, and international trade. Given the nature of implementing economic policy reforms, economic policy development must follow a logical progression since virtually all of the key economic sectors are interrelated. Moreover, these new measures must be complementary to achieve positive and sustainable economic growth.
USAID Role and Achievements to Date: After years of negative growth, Mongolia's economy may be turning around. In 1995, GDP grew by 6.3%, industrial output grew by 20.7 % in real terms, exports grew by 22% in real dollar terms, the current account deficit declined to $63.7 million, and the current budget surplus rose to 4.1% of GDP. USAID has contributed to economic reforms by: 1) providing technical support in the formulation of the GOM's macroeconomic plan (later approved by the IMF); 2) carrying out research necessary for privatization; and 3) assisting the GOM deal with its large Russian ruble debt burden in a way that does not hamper future economic growth.
Training constitutes an important part of USAID's efforts under this activity. Twelve Mongolians are in the United States on long-term economics training, and up to 15 more will also be sent. More than 120 bankers have received short-term training in banking procedures and practices affecting small to medium-sized businesses. Training topics included credit analysis, trade finance, accounting, and asset-liability management.
Description: The Economic Policy Support Project is a $7.5 million activity launched in 1994. Development Alternatives Incorporated (DAI) is USAID's sole partner responsible for achieving the three Intermediate Results supporting this Strategic Objective, namely to: 1) improve macroeconomic management; 2) improve economic policy analysis capabilities; and 3) develop sound procedures in the Mongolian banking sector.
Host Country and Other Donors: The International Monetary Fund, the World Bank, and the Asian Development Bank are working with the GOM in establishing a detailed policy agenda for reform.
Beneficiaries: 2.2 million Mongolians who will enjoy a better standard of living as the result of a private sector led, market-oriented economy.
Principle Contractors, Grantees, or Agencies: USAID implements this activity through Development Alternatives Inc., a contractor, the GOM's Prime Minister's Office, and the banking sector.
Major Results Indicators:
1. Macroeconomic management improved
2. Economic policy analysis improved
3. Asset/credit management among small
commercial banks improved
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