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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).

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MONGOLIA

	FY 1997	FY 1998	FY 1999
	Actual	Estimate	Request
Economic Support Funds.............	$7,000,000	$12,000,000	$6,000,000

Introduction

As the first communist Asian country to simultaneously reform its economy and politics, Mongolia provides an important example to all of Asia. The United States has a clear national interest in the long term success of Mongolia's reform. All political parties, including the top leadership of the Mongolian People's Revolutionary Party (MPRP) (the former communist party), are publicly committed to democracy and are actively participating in democratic institutions. However, economic hardships remain for many, including the non-herding agricultural sector as well as other industries in rural areas. Since its election in June 1996, the current Mongolian Government has undertaken a bold and wide-ranging economic reform program, designed to eliminate the last vestiges of the centrally planned economy. With the next nationwide election due in 2000, the long term success of democratic reform depends upon all segments of Mongolian society feeling they have a stake in a the new system. USAID's program focuses on three areas: (1) providing assistance to the energy sector, (2) encouraging broad-based economic growth, and (3) building democracy.

Development Challenge

The Government of Mongolia (GOM) and USAID recognize that Mongolia must create a stable political and economic environment if it is to attract the domestic and foreign investment necessary for development. Specific obstacles to growth include: (1) a vast territory with limited energy supplies, transportation and communications systems which have created a fragmented domestic market and make it difficult for Mongolian firms to compete in international markets; (2) a high level of dependence on overseas development assistance; (3) continued reliance on top-down systems of governance below the national level; (4) an inadequately developed judicial branch; and (5) growing alienation among the population because tangible benefits of reform have failed to reach the typical Mongolian.

Despite these problems, development activities in Mongolia are able to build upon a number of strengths in Mongolian society. These include: (1) a broad commitment to the development of democracy and a market economy among key 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 has treated these obstacles and strengths as guideposts to help develop its program in Mongolia. USAID recognizes that the growth of democracy and a market economy in Mongolia must be carefully paced to promote political and economic development. USAID's strategy of balanced development in Mongolia is producing significant results. Four years of limited reform under the previous MPRP administration created the foundation of a market economy and allowed democracy to grow deeper roots, setting the stage for the current government's more ambitious program of reform. This new plan, which has been developed and implemented with USAID assistance, includes new and sound banking laws, a far reaching privatization program, pension reform and eliminated most subsidies on energy prices. The approach has been to reduce inflation, build up the banking system and make Mongolia friendly for investors, both domestic and foreign.

Given the 1989 baseline of a completely controlled society with no democratic institutions, Mongolia's political transformation has been astonishing. While the inflation rate has improved to 1.7% per month

(from 3.5% in 1996) and economic reform efforts promise to bring significant benefits over the long term, economic difficulties remain. Per capita income is still 20% below its 1989 level, industrial output is declining, banking reform is just beginning, and credit is very limited for new enterprises. Thus, while many of the hard decisions associated with the transition to a market oriented economy have been made, and the Mongolian economy is growing (at an average rate of 3.6% during the last four years), the nation continues to experience hard times. In sum, the most significant development challenge faced by USAID in Mongolia is to continue to provide Mongolia with the optimum package of development assistance that will enable the GOM to uphold and deepen the democratic and economic reforms it has so vigorously and so successfully championed.

Other Donors

In 1997 the donors pledged $250 million in support for Mongolia. Among bilateral donors, the United States ranks third, behind Japan and Germany, in the value of its grant assistance to the Government of Mongolia. The International Monetary Fund, the Asian Development Bank, The World Bank and the Government of Japan also provide substantial development-related loans to Mongolia. Other donors include the United Nations Development Program, UNICEF, and the governments of Denmark and Sweden. In addition, the Soros Foundation, non-governmental organizations, and various missionary organizations are active in the field of development.

FY 1999 Program

USAID's strategy for the strengthening of the private-sector led market economy is contained in the Economic Policy Support Project (EPSP). This program provides technical assistance and training opportunities to empower both the public and private sectors to strengthen and deepen Mongolia's reform efforts. The program provides assistance through the placement of an economic policy advisor in the Office of the Prime Minister.

Beginning in FY 1998 and continuing through FY 1999, EPSP will expand to include the provision of long-term technical assistance in the areas of energy policy, pension reform, privatization and budget formulation and analysis. Technical advice will be provided according to priorities set by the Mongolians themselves.

USAID will broaden and deepen democratic reform. We will continue strengthening democratic institutions with a goal to assist the GOM to be more responsive to citizens' interests and respectful of human rights and values. The democracy program, responding to government and parliament interests, will continue to assist public information and legislative affairs offices in the government ministries and provide guidance in law-writing in selected areas. USAID will continue to support judicial reform through judicial training and the distribution of digests of laws and precedents for use on the bench.

A proposed Rural Civil Society Program (RCSP) is geared to help in the economic and political development of rural Mongolia, which contains 40% of the population and which has felt the full brunt of economic dislocations of the past eight years. The new program, planned to begin in FY 1998, is intended to support critical needs of farmers and herdsmen. It will begin by working on the development of rural-based NGOs and, in due course, hopes to develop additional programs in rural infrastructure and small-scale private enterprise.

The energy emergency is now largely over and USAID's energy assistance will shift to policy support and the expansion of rural electrification. We expect to provide some generator sets for provincial centers, assuring a stable power source and a foundation for small scale enterprise development in these depressed areas.

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MONGOLIA
FY 1999 PROGRAM SUMMARY
(in thousands of dollars)

USAID Strategies and Special Objectives	Economic Growth & Agriculture	Population & Health	Environment	Democracy	Human Capacity Development	Humanitarian Assistance	TOTALS
SO1: A policy and institutional framework conducive to rapid private-sector expansion created. - ESF	4,000	---	---	---	---	---	4,000
SO2: Gains in the transparency, accountability, competency, and responsiveness of Mongolia's primary institutions of democracy consolidated. - ESF	---	---	---	2,000	---	---	2,000
SpO1: Support provided to the Mongolia power production system. - ESF	---	---	---	---	---	---	---
Totals - ESF	4,000	---	---	2,000	---	---	6,000

USAID Representative, Edward Birgells

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ACTIVITY DATA SHEET

PROGRAM: Mongolia
TITLE AND NUMBER: Mongolia Economic Policy Support Project, 438-SO01
STATUS: Continuing
PROPOSED OBLIGATION AND FUNDING SOURCE: $4,000,000 (ESF)
INITIAL OBLIGATION: FY 1995 ESTIMATED COMPLETION DATE: FY 2000

Purpose: The goal of the Economic Policy Support Project (EPSP) is to increase the standard of living of the people of Mongolia and to improve 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 seeks to provide technical assistance and carefully targeted in-country training to establish sound, growth-oriented market-economy policies and practices, and to develop and/or strengthen select public and private-sector institutions that will help develop and sustain a market-oriented economy.

USAID Role and Achievements to Date: Perhaps the most significant achievement under the technical assistance component of this activity is that the current Prime Minister has taken on three American-trained, Mongolian economists who worked under EPSP during its first year as his economic advisors, naming one of them as his Senior Economic Advisor. In this one decisive action the, GOM hired a core cadre of experienced economic policy analysts, capable of implementing the GOM's economic growth objectives. Other achievements under the technical assistance component include the following:

First, the activity played a key role in organizing the current government's Economic Policy Workshop helping to set its agenda, recruit four expatriate experts as speakers, and pay for workshop costs. The results of the conference influenced the highest levels of the GOM, including the Prime Minister and senior ministers, and led to the development of a comprehensive economic reform agenda.

Second, with direct assistance provided by the activity, the new government's economic reform agenda was drafted, finalized and an implementation timetable was set.

Third, EPSP played a key role in encouraging and helping to set new (and significantly higher) electricity, heat, coal and petroleum prices, which resulted in the Central Energy System (CES) showing a profit for the first time in recent memory. It also suggested that existing, subsidized prices be maintained on the first 100 kw of household electricity consumption. This suggestion made the increase more politically palatable.

Fourth, EPSP played a key role in alerting the new Democratic Union government to the precarious financial condition of two of the nation's largest banks and to the inadequacy of the banking reform efforts under the previous government. It also actively assisted in the design and implementation of a new banking strategy which has been widely praised.

Training also constitutes an important part of USAID's efforts under this activity. Fifteen Mongolians are in the United States on long-term economics training. Training activity will continue with targeted long-term training. However, EPSP will focus more on short-term training in both the United States and third would countries that compliments the technical assistance to be provided, in the areas of macroeconomic reform, budget analysis and energy policy. The goal of this activity is to build a cadre of market oriented policy makers for the GOM.

Overall, 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. The tremendous impact of the activity is directly attributable

to the three qualities cited above. 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.

Description: The Economic Policy Support Project is a $7.5 million activity, designed to provide a diverse array of technical assistance and training opportunities to empower both the public and private sectors to strengthen and deepen Mongolia's transition to a fully functioning market economy. At the GOM's request, the technical assistance component of this activity has been located in the Office of the Prime Minister where it serves as an intra-governmental resource for developing, debating, implementing and evaluating economic policies.

Host Country and Other Donors: The International Monetary Fund, the World Bank, and 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. However, no other donor plays the all-encompassing role that the EPSP plays. Indeed, the other donors count on EPSP to ensure that their assistance is needed and appropriate.

Beneficiaries: Mongolians are benefiting from lower inflation and interest rates, reliable energy services, as well as other benefits of an efficient market economy.

Principal Contractors, Grantees, or Agencies: USAID implements this activity through the GOM's Prime Minister's Office, Development Alternatives Incorporated, a technical assistance contractor, and the Academy for Educational Development, a training contractor. Privatization assistance will be provided by an undetermined contractor under the Global Bureau's Support for Economic Growth and Institutional Reform contract (SEGIR)

Major Results Indicators:
1. Macroeconomic management improved.
2. Economic policy analysis improved.
3. Commercial energy policies implemented.
4. A privatized economy, run by a strengthened private sector.

A Performance Monitoring Plan for this program is in the final stages of development, but not yet in place. More specific results will be reported on in the next Congressional Presentation.

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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: $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.

USAID Role and Achievements to Date: 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 1998, with the introduction of the Rural Civil Society Program (RCSP), which will assist local communities in addressing problems, as well as develop the institutional capacity of local, private organizations to identify and implement solutions to problems at the grassroots level.

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 nongovernmental 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.

Description: USAID currently works through three organizations to implement its democracy PROGRAM: The Asia Foundation (TAF), the International Republican Institute (IRI) and the International Development Law Institute (IDLI), and a contractor still undetermined to implement the Rural Civil Society program.

The Asia Foundation's program helped to: 1) develop non-governmental organizations (NGOs); 2) support NGOs engaged in economic and political policy issues and 3) provide research and information support services to other NGOs engaged directly in policy development. USAID/Mongolia's assistance to The Asia Foundation will terminate at the end of FY 1998.

The International Republican Institute 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 aimag (provincial) and soum (county) levels. IRI is also actively engaged in efforts to improve the effectiveness of Government of Mongolia (GOM) ministries and the Great Hural (national parliament).

The International Development Law Institute's program seeks to reinforce the professionalism and independence of the Mongolian judiciary. Specific activities include: 1) the development of "benchbooks" for judges which will serve as reference materials and self-training guides; and 2) training in the use of the benchbooks.

The RCSP will: 1) increase the capacity of local civil society to identify and meet community priorities rapidly and successfully; 2) bring together NGOs, the public and the private sectors to begin to address shared needs in a systematic fashion and as partners; and 3) develop alliances between local communities and politically sophisticated national civil society groups to defend local interest and to act as a conduit for policy decisions at the local and national levels; 4) develop rural institutions that can provide training and support for the development of rural enterprises and agriculture.

Host Country and Other Donors: Several other donors are very actively involved in commercial and general legal reform and education. The United Nations Development Program, in cooperation with the governments of Sweden and Denmark are engaged in a program to upgrade the quality of public administration and adherence to democratic processes in local government. The Asian Development Bank (ADB) also engaged in a effort to improve the quality of administration, particularly within the judicial branch. Gesellschaft Fur Technische Zusammenarbeit (GTZ) is supporting major training of judges. (USAID activities in the judicial branch are designed to complement the work of the ADB and GTZ in this field.)

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 men and women who are expected to play an increasingly important role in determining Mongolia's future. The RCSP could benefit up to 40 percent of a rural Mongolians

Principal Contractors, Grantees, or Agencies: USAID implements this activity through the following partners: The International Republican Institute, the International Development Law Institute, a competitively selected U.S. NGO (to be determined) and ACDI/VOCA.

Major Results Indicators:
1. A robust and self-sustaining community of indigenous NGOs exists.
2. An independent court and judicial system makes and disseminates informed legal rulings.
3. The electorate is given access and a voice in national and local legislatures.
4. Communities are taking a greater role in solving economic and social problems.

A Performance Monitoring Plan for this program is in the final stages of development, but not yet in place. More specific results will be reported on in the next Congressional Presentation.

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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:
INITIAL OBLIGATION: FY 1992 ESTIMATED COMPLETION DATE: FY 2000

Purpose: To increase the reliability of Mongolian electricity and district heating systems in Ulaanbaatar and selected aimag (provincial) centers through the provision of spare parts, commodities and limited technical assistance.

USAID Role and Achievements to Date: The Mongolian Energy Sector Project (MESP) has been USAID's most visible project in Mongolia. It has provided critically needed equipment, spare parts, technical assistance and training to shore up energy production at Power Plants #2, #3 and #4 in Ulaanbaatar and the Sharyn Gol and Baga Nuur coal mines. The emergency situation in the energy sector has subsided and power plants and coal mines are now running more efficiently and price increases have resulted in a positive cash flow for the energy authority. More recently, project funds have been used to purchase diesel generator sets to produce electricity in five provinces. These diesel generator sets will be 40% more efficient than the Soviet and Czech sets they replace. In addition, the Mission has entered into an inter-agency agreement with the U.S. National Renewable Energy Laboratory to accelerate the use of wind energy technology in Mongolia.

The most significant achievement of the MESP is that it has kept the Mongolian electricity, steam heat, and hot water system up and running without any major long-term interruptions. In addition, the project has trained key Mongolians in power plant operations and management, thereby helping to protect the sustainability of USAID's energy sector investments.

Description: With the breakup of the Soviet Union in 1990, the Government of Mongolia (GOM) assumed increased responsibility for construction, operation and maintenance of their infrastructure. As early as 1991 it was apparent that outside assistance would need to be provided if the electric power and urban steam heating systems were to continue to function, particularly during the extended winter period. Much of Mongolia's power generation equipment was on the verge of being unserviceable and the country lacked the foreign exchange to purchase critically needed spare parts in international markets. USAID authorized the subject project in 1992. The Agency's strategy has been to help the Mongolians maintain existing levels of power production and improve the reliability of their energy systems.

This project is currently in its last stages. Project funds are being used to help the Government of Mongolia to maintain energy production through the winter of 1997/98 and to replace obsolete Soviet and Czech diesel generator sets in selected aimag centers. Upon achievement of these activities, the project will have largely succeeded in meeting its primary goal, namely, avoiding a calamity in the Mongolian energy production sector. The last major action under this project, undertaken in response to a request from the GOM, will be to purchase a limited number of additional generator sets for selected aimag centers. After this action is completed, USAID intends to fold any remaining energy sector activities into the Economic Policy Support Project.

Host Country and Other Donors: The GOM has sharply increased electricity and coal tariffs over the past year, and the revenue from these price increases is now making it possible for the GOM to cover the maintenance costs associated with the energy production system. Other donors involved in the energy sector include the World Bank (upgrading production at the Baga Nuur and Sheve-Ovoo coal mines), the Asian Development Bank (assisting in the rehabilitation of Power Plant #3 and improving

the financial management of the Mongolia Energy Authority), the Government of Japan (also upgrading production at the Baga Nuur and Sheve-Ovoo coal mines and assisting in the rehabilitation of Power Plant #4), the NORDIC Development Fund and DANIDA, (engaged in limited rehabilitation work at Power Plant #3), Gesellschaft Fur Technische Zusammenarbeit, (assisting in upgrading the power plant at Darkhan).

Beneficiaries: Direct beneficiaries are all residents who are serviced by the Mongolian electricity and district heating systems in Ulaanbaatar and selected aimag centers. Indirect beneficiaries include the entire population of Mongolia because the activity has succeeded in averting a humanitarian, economic and political calamity in the energy sector, thereby permitting the GOM to move more rapidly in implementing its democratic and economic reform agenda.

Principal Contractors, Grantees, or Agencies: USAID implements the program through the GOM Ministry of Infrastructure and Wagner Asia Equipment, distributor for caterpillar equipment in Mongolia, a U.S. firm.

Major Results Indicators:
1. Disruption averted to the energy production system.
2. Sustainable improvements made in the energy sector.
3. Considerable cost savings in supplying rural electricity

(This SO will not be funded in FY 99.)

A Performance Monitoring Plan for this program is in the final stages of development, but not yet in place. More specific results will be reported on in the next Congressional Presentation.

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