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Mongolia
Please note: All linked documents are in PDF format
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The Development Challenge: Mongolia's harsh climate, small domestic market, land-locked status, and lack of infrastructure present formidable challenges. Yet the country provides an important example to others in East Asia, Central Asia, and elsewhere on how to manage an economic transition within a democratic political framework.
Mongolia's transition to democracy is a remarkable achievement with ramifications that go well beyond its frontiers. Ten elections have been held over the past decade, three each at the local and presidential levels and four at the parliamentary level. Governments have been chosen through elections that reflect the will of the people, and the transition from one government to the next has taken place in a largely positive and cooperative atmosphere. The most recent Parliamentary elections, held in June 2004, further demonstrated the country's progress toward democracy. In that election, the Motherland Democracy Coalition (MDC), which previously had held just four of the 76 seats in Parliament, won 34 seats against the 36 captured by the Mongolian People's Revolutionary Party (MPRP), the reformed Communists who had governed the country for all but four of the 14 years since the transition from socialism began in 1990. The MDC and MPRP now share power in a de facto coalition, with the MDC holding the Premiership and the MPRP the Speakership. Yet, important challenges remain. The judiciary and civil society remain weak, corruption remains high, public access to the decision-making process is limited or nonexistent, the Parliament has yet to emerge as an effective overseer of the executive branch, and the participation of women in the political process is strikingly low (women hold only five seats in Parliament, for example, and none of the 21 regional governorships).
The direction and pace of economic change also have been encouraging. Approximately 75% of the Mongolian economy is now in private hands, up from virtually nothing at the beginning of the 1990s. Total annual gross domestic product (GDP) is estimated at just over $1 billion and per capita income is estimated at around $500 per year. Tourism, construction, and light industry offer significant future potential, while international investor interest in mining increased significantly over the past year.
After several years of economic stagnation and decline, GDP growth rates reached 3.9% in 2002 and 5.6% in 2003. This encouraging development suggests that Mongolia's hard-won political stability is beginning to have an economic impact. A vibrant "underground" economy and informal "remittances" from the estimated 70,000 Mongolians working overseas may make the actual per capita income figure even higher, but the poverty rate remains high at 33%. The growing international debt burden--now approximately $1 billion--is cause for concern, as is the level of corruption. Similarly, while the new coalition government has verbally expressed its commitment to continue the reform process and to maintain macroeconomic discipline, it is not yet clear that it will be able to do so in the face of significant political pressure on both parties to carry out unaffordable campaign promises.
U.S. interests in Mongolia stem from its important role in contributing to stability in a potentially volatile part of the world; the positive example it sets in promoting economic reform and democracy; and its visible support for the United States in the continued war on terrorism. Most notably, Mongolian peacekeeping contingents and advisors are currently on duty in both Iraq and Afghanistan. Mongolia's strategic location between Russia and China, two traditional rivals that are also nuclear powers and important players on the global stage, adds to its significance.
The USAID Program: The projects being carried out under USAID's strategy are tightly focused, directly addressing two of Mongolia's most pressing concerns: sustainable private sector-led economic growth and more effective and accountable governance. Every USAID project in Mongolia helps advance at least one of these two objectives.
Activities to promote sustainable, private sector-led growth are directed towards the policy, sector, individual firm, and "grassroots" levels. The Economic Policy Reform and Competitiveness (EPRC) Project provides training and advisory services to government institutions and the private sector. Project staff have worked closely with both major political groupings to develop a bipartisan package of legislative proposals for tax reform that will improve Mongolia's investment climate, increase domestic production, and facilitate the creation of new jobs in the private sector. Significant work is underway on moving toward the privatization of Mongolia's energy sector. EPRC has helped establish an "Open Government" website that serves as a venue for the posting of new legislation and for the conduct of on-line chats between government and the public, and is moving to help strengthen Mongolia's nascent chapter of Transparency International to serve as a watchdog on corruption. EPRC is also helping Mongolia prepare for the impact that the expiration of the Multi-Fiber Agreement will have on its textile industry and is strengthening Mongolia's capacity to conduct trade negotiations.
Business training provided through USAID focuses on migrants from rural to peri-urban areas and on the harsh southern portion of the country and helps extend knowledge about the market economy, including sound business practices, to a much larger segment of the population. As a result of USAID assistance, over 500 small businesses were either created or significantly strengthened during the past year and more than 1,500 people were placed in jobs.
Judicial reform is the largest program within USAID's governance work. Following the introduction of new civil and criminal codes, USAID and its partner, the National Center for State Courts, launched a series of training and outreach programs for every judge in the country, which improved case management and court administration, introduced new approaches to continuing legal education, and helped address corruption in the legal sector. As a result, all courtrooms are now fully automated and public access to information is increasing dramatically. Additionally, in the past year, USAID-funded assistance to political parties led to a more representative parliament after the June 2004 general election, while work with the Parliament led to passage of a far-reaching reform bill intended to strengthen the ability of parliamentary committees to oversee the work of the government. USAID plans to continue and expand these efforts over the next several years and launch new initiatives aimed at increasing the transparency of government and expanding the participation of women in the political process.
Other Program Elements: Several USAID Washington-funded programs are further enhancing the new USAID country strategy. These include a grasslands and wildlife management project in eastern Mongolia; support to a pioneering microfinance institution; strengthening of nongovernmental organizations (NGOs) related to human rights and rural development; and a variety of small information technology (IT) initiatives. Finally, the sale of wheat provided by the U.S. Department of Agriculture's Section 416 program is providing significant additional development resources, especially to NGOs working in rural areas.
Other Donors: Though its assistance level is gradually decreasing, Japan remains Mongolia's largest bilateral donor with a portfolio that includes a variety of infrastructure and training projects, as well as rural development and environmental protection efforts. The United States is third in terms of development assistance after Germany's GTZ with programs in legal reform, small and medium enterprise development, energy, conservation, and rural finance. The Asian Development Bank (ADB) is the largest multilateral donor in Mongolia with programs in agriculture, public sector reform, road construction, and regional development. The World Bank is funding projects in sustainable livelihoods, private sector development, water and sanitation, roads, information technology (IT), energy, and judicial/legal reform. The International Monetary Fund (IMF) focuses on fiscal and monetary policy through its $37 million Poverty Reduction and Growth Facility. Other significant players are the United Nations (democratic governance, poverty reduction, microcredit and entrepreneurship, sustainable grasslands management, biodiversity) and the European Union (agricultural exports, rural services). Other donors providing support to Mongolia include: India (scholarships, IT); Australia (public sector reform, NGO capacity building, and scholarships); Canada (IT, NGO development); Russia (scholarships); Korea (training for civil servants and volunteers); and Norway (legislative strengthening). USAID works directly with the World Bank in the energy sector, with the IMF on policy reform measures, and with the GTZ on judicial reform.
Mongolia has also been selected as a candidate for receipt of resources from the new Millennium Challenge Account (MCA). As of this writing, its proposal for an MCA compact is under review.
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