Mongolia Update - Coverage of 1998 Political Changes | 1999

Editor and Writer: David South

Researcher: G. Enkhtungalug

Publisher: UNDP Mongolia Communications Office

Published: February 1999

Background: Mongolia Update - Coverage of 1998 Political Changes was a one-off special edition of Mongolia Update to help explain a politically turbulent year where three governments and three prime ministers came and went. At the time, Mongolia was in the grips of a severe crisis, called one of "the biggest peacetime economic collapses ever". By 2012, Mongolia was called the "fastest growing economy in the world". It is proof the foundations for Mongolia's recovery from crisis were laid in the late 1990s. The success of the peaceful transition stands in stark contrast to many other international interventions post-2001. 

Mongolia Outlook 2012: World's Fastest Growing Economy (Publisher: Eurasia Capital), 31 January 2012.

This is an unofficial publication of UNDP. Views presented in this document do not necessarily reflect those of UNDP. Mongolia Update is provided as a service to those who are interested in the rapid changes taking place in today’s Mongolia.

A note about Mongolia Update: The Mongolia Update has proven to be one of the more popular documents produced by the UNDP Mongolia office. Since the autumn of 1997 UNDP has been able to offer two more frequently updated sources of information: the UNDP homepage and our monthly newsletter, the Blue Sky Bulletin (available from our office if you are not already receiving it). Please use the United Nations Homepage at http://www.un-mongolia.mn to keep abreast of the latest political, economic and social developments in Mongolia. Mongolia Update is an unofficial document of UNDP and is designed to periodically keep our partners outside of Ulaanbaatar apprised of issues in the country. 

A year of political divisions
Who is who in the cabinet
A government of technocrats

Background — a year of political divisions

Divisions in the ruling Democratic Coalition Government in 1998 led to the fall and rise of three governments and three prime ministers. From the beginning of 1998 cracks within the Coalition intensified. A number of Democrats were dissatisfied with the system whereby the Prime Minister and the Cabinet were not parliamentarians, but "experts" appointed from outside and perceived to be aloof from Parliament. On January 15, 1998, after several weeks of wrangling Parliament ruled that under the Mongolian constitution MPs could serve as Cabinet ministers. It was to prove a fateful decision for the year-and-a-half old M. Enkhsaikhan Government.

A faction within the Coalition Government became more vociferous, with its complaints that the Democrat’s election promises would not be fulfilled without better coordination between the Government and the Parliament. Things came to a head when the General Council of the Mongolian National Democratic Party (MNDP) called for the resignation of its own Government. The move was led by the 35-year-old Speaker of the Parliament and MNDP caucus leader Ts. Elbegdorj - a natural Prime Minister in a Government of MPs. After a joint meeting of the ruling councils of the Mongolian Social Democratic Party (MSDP) and the MNDP, Prime Minister Enkhsaikhan handed in his resignation to Mongolian People’s Revolutionary Party (MPRP) President Bagabandi. The new Prime Minister, Ts. Elbegdorj, was sworn into office on April 23, vowing to chart the same economic course as his predecessor. While trying to form his Cabinet, Elbegdorj quickly ran into trouble.

The opposition MPRP was emboldened, exploiting the fissures in the Democratic Coalition. They started to launch attacks against the new Government. Elbegdorj’s attempts at forming a Cabinet were delayed as one candidate after another was rejected.

The Cabinet was not composed until May 28, when 28-year-old CH. Saikhanbileg became Education Minister - the fifth nominee put forward for the post. The new Government faced an opposition boycott of Parliament by the beginning of June, in the wake of the merging of a state bank with a private bank amidst charges of conflict of interest. On July 25 Ts. Elbegdorj and his entire Cabinet resigned after losing a no-confidence vote in Parliament. The Elbegdorj cabinet continued to work as an acting Government. The murder of prominent democrat and minister of infrastructure S. Zorig shocked the nation October 2. Poised to become a candidate for Prime Minister, Zorig was axed to death in his apartment by two assailants. The crime remains unsolved and grabbed international headlines in what had been seen as the most peaceful country making the transition from communism to democracy. In November the Constitutional Court ruled MPs holding Cabinet posts as unconstitutional. This effectively reversed the aforementioned Parliament decision of January 15, 1998. Throughout the year opinion polls showed a growing weariness and disillusionment creeping into the body politic over the political indecision.

By December a compromise Prime Minister was found, in the form of the mayor of the capital city, Ulaanbaatar. On December 9 Prime Minister Narantsatsralt took office. As 1998 turned into 1999, Narantsatralt was still trying to have his Cabinet approved by both the Parliament and the President.

External economic turmoil started to have its affect on Mongolia in 1998. Many thought the country could ride out the Asian crisis unscathed, but Prime Minister Ts. Elbegdorj admitted in June it was unavoidable. Copper prices, Mongolia’s largest foreign currency earner continued to plummet to record lows. Prices for cashmere and gold, major exports for Mongolia, also declined. The picture for the domestic economy had some bright spots in 1998, with inflation under control and an expansion in the informal service sectors. The Government’s Green Revolution campaign was able to significantly boost the production of vegetables by encouraging home gardening. The economy was still supported by foreign aid, which totaled US $205 million in commitments for the year.

Instability in Russia has also had an impact on Mongolia. For example, in May Russian coal miners blocked the Trans-Siberian train that passes through the capital Ulaanbaatar on its way to China. In August a severe benzene shortage prompted the reintroduction of rationing. At its worst all gas supplies for the country were pulled back to the capital, leaving many stranded and unable to drive cars and run gas-powered electricity generators. The delays were due to job actions by Russian workers. Russia accounts for 30 per cent of Mongolia’s imports and 13.5 per cent of its exports. On the plus side, foodstuffs from Russia became cheaper with the decline of the rouble.

Who is who in the Cabinet

Prime Minister R.Amarjargal, 38 year old Moscow educated economist. He graduated from Economic Institute of Moscow as an economist and a teacher in 1982 and  earned a master’s degree at Bradford University in 1994-1995. 

1982-1983, he was an instructor in Mongolian Trade Union, 1983-1990, he worked as a teacher in Military Institute, 1991-1996 has served as Director of the Economics College. He was a popular Foreign Relations Minister before resigning with the entire cabinet on July 24, 1998. A member of MNDP, he speaks fluent Russian and English.

Finance Minister Yansangiin Ochirsukh. Born in Ulaanbaatar, economist Ochirsukh graduated from the Mongolian National University and did postgraduate work at Columbia University in the United States. He worked as a lecturer and researcher at the University before moving to the Mongol Bank, where since 1997 he has been in charge of foreign exchange and reserve policy. A member of the Mongolian Social Democratic Party, he speaks Russian, English and Chinese.

Minister of External Relations Nyamosoriin Tuya, 40, was born in 1958 in Ulaanbaatar. Studied in the Institute of External Relations in Moscow, Russia in international journalism. From 1984 to1985 she studied French culture and civilisation at the Sorbon University and did a Masters degree on the " Theory of Democracy" at Leeds University, England. Ms.Tuya speaks English and French. Married with two sons and a girl, she worked as editor of the foreign programming service of Mongolian Radio. After 1996, she was working as Head of the Department for Common Policy at the Ministry of External Relations.

Minister of Environment Sonomtserengiin Mendsaikhan, 39, was born in Ulaanbaatar, and completed degrees at the Mongolian State University and the State University of Irkutsk, Russia in mathematics. S.Mendsaikhan speaks German and Russian. Married, he has a daughter. Started his career as a math teacher at an Ulaanbaatar school, he also worked as a lecturer at the Mongolian State University and later become general secretary of the Social-Democratic Party. From 1992 to1993 he worked as a manager in the Unuudur (Today) private newspaper. From1993 to 1997 he worked as a private company director, and in 1997 he was assigned as advisor to the Parliament’s Speaker.

Minister of Defence Sh.Tuvdendorj, 32, graduated from the Army Academy of Mongolia and the Otgontenger Language School. He worked as an army officer, technician and laboratory engineer at the State Telecommunications Utilisation Committee. He started a political career in 1994, working as secretary in charge of local affairs. In 1997, he was elected as general secretary of the Mongolian National Revolutionary party.

Minister of Agriculture Choinzongiin Sodnomtseren, 46, was born in Ulaanbaatar and is married with three children.After attending Mongolian State Agricultural University, he acquired a Ph.D. in Saint Petersburg, Russia. He also has a Ph.D. degree in veterinarian sciences.

While spending many years of his career on research studies, he worked as a lecturer at the State agricultural University. Sodnomtseren became later Principal and Rector of the State Agricultural University.

Minister of Health and Social Welfare Sodoviin Sonin. Born in Ulaanbaatar in 1956, S.Sonin graduated from the Medical University of Irkutsk and Mongolia’s State Administration and Management Development Institute. A doctor and professor of medicine, he has taught surgery at the Mongolian Medical University, worked at the Central Clinical Hospital and served as a department chair at the Ministry of Health and Social Welfare. Since 1991 he has headed the Asian Development Bank-backed Health Sector Development project. Sonin, who speaks Russian and English, does not belong to any political party.

Minister of Infrastructure, Gavaagiin Bathuu, 39, born in Hujirt county of Uvurhangai province. Married with two sons and a daughter, he graduated from the Economics Institute of Harikof, Russia as an auto engineer and economist. He speaks Russian and English. He started his career as a repairman and dispatcher at the state auto-engineering company.From 1986 to 1992, he worked at the Ministry of Infrastructure as an officer and senior officer and from 1992 to 1996 he worked as Director of Shunklai Company. Since1996 he was working as a head of the Department for Road and Transportation at the Ministry of Infrastructure.

Minister of Justice, Logiin Tsog, 47, was born in Ulaanbaatar. He graduated from the State University in Irkutsk, and from the Social Science Academy in Russia. A lawyer with high education in politics, he speaks Russian and English. He worked as the prosecutor for the department at the Ministry of Justice. From 1988 to 1989, he worked as inspector at the Mongolian Revolutionary Party’s Inspection Committee. From 1990 to 1991, he was assigned as the Head of the Standing Committee of the State Baga Hural (parliament of that time) on legal issues. From 1991 to 1996 he was general director of the "Golden Button" Co. Ltd and in 1996 he was elected as general secretary

Minister of Enlightenment A.Battur was born in 1965 in Hovd aimag. Battur is a career diplomat who graduated from Russia’s Institute for International Affairs and completed a postgraduate course at France’s Institute for International Affairs. He worked as an attaché in the Foreign Ministry between 1989 and 1992, and spent 1992 to 1996 as the cultural attaché at the Mongolian Embassy in France-where he also worked with UNESCO- before returning to senior administrative positions at the Ministry in 1996.

A member of the Mongolian National Democratic Party, he speaks English, French and Russian and is married with two children.

A government of technocrats

By January 15, 1999 Mongolia had its first complete Government in six months. All nine members of the Mongolian Cabinet have been approved and appointed. Like Prime Minister Narantsatsralt, they are not Members of Parliament. Since all nine Cabinet Ministers were chosen for their experience, many expect a more stable course to be charted for the remainder of the Democratic Coalition’s term in office (until 2000). However, the new Government might experience the same sort of complaints the Enkhsaikhan Government received, when Parliament accused those ministers of being aloof. It is also unclear if the MPRP will continue to offer a vigorous opposition. For the time being its seems the political forces have exhausted themselves and there is a genuine desire for stability in 1999. The new Government is expected to follow the same reform directions of the two previous Democratic Coalition Governments and details will emerge over the coming weeks.

ORCID iD: https://orcid.org/0000-0001-5311-1052.

© David South Consulting 2018  

Information Accelerates Crisis Recovery and Development | 1997

The United Nations Information Shop (UN Info Shop) was established by UNDP Mongolia in 1997 and was managed by the UNDP Mongolia Communications Office. Context is everything. At this time, Mongolia was still recovering from the chaotic and turbulent transition from Communism to free markets and democracy begun at the start of the 1990s, called by some "one of the biggest peacetime economic collapses ever" (Mongolia's Economic Reforms: Background, Content and Prospects, Richard Pomfret, University of Adelaide, 1994). There was a thirst for information: access to the Internet was still limited and access to mobile phones was just the preserve of the rich. As a legacy of the past, information, especially that about the outside world and the country’s true economic and social conditions, was restricted. During the years of Communism, even simple travel from one place to the next was strictly regulated. 

While today we can take it for granted that the Internet, and mobile and smart phones, deliver the world’s information in seconds, this just was not the case in the late 1990s in Mongolia. 

The UN Info Shop quickly became a crucial resource for students (many schools and universities were nearby) and it became a first stop for many wishing to access the Internet. It also substantially raised the profile of the UN in the country as the public could, for the first time, enter the UN building and discover what the UN was doing in the country. They could also visit the UNDP Mongolia Communications Office and meet its team. 

P. Dagmidmaa reads the Human Development Report Mongolia 1997 in the UN Info Shop.

An announcement in the Blue Sky Bulletin about the launch of the new journal Cooperation South.

The UNDP Mongolia Communications Office Team 1998 outside the UN Info Shop in the capital, Ulaanbaatar: David South, Bayasgalan and Bayarmaa.Many initiatives grew from the talented and dynamic UNDP Mongolia Communications Office team. Here are links to some of them: 

Ger: Mongolia's First Web Magazine 

Mongolian AIDS Bulletin

UN/UNDP Mongolia Development Web Portal 

Case Study: UN + UNDP Mongolia | 1997-1999

© David South Consulting 2017

Global Financial Crisis Response | 2008 - 2011

The year was 1997. I was hired by UNDP Mongolia to establish and head up its communications operations in the country (UNDP Mongolia Communications Office). At the time, Mongolia was experiencing “one of the biggest peacetime economic collapses ever” (Pomfret: 1994) . And it showed. Food was scarce, unemployment high, poverty was increasing, and the capital Ulaanbaatar consisted of decaying and shabby Soviet and Communist architecture. The country felt isolated and cut-off from a world experiencing the boom of the late 1990s and the information technology revolution. 

Working in the country for two years (1997-1999) taught me a great deal about how a country recovers from a severe crisis and rebuilds its economy. I learned about human resilience and how markets can restore economies; the key role information technology plays and the importance of unfettered information and knowledge sharing to give people the tools they require to re-build their lives and grow wealth. Read more about this experience here: http://www.davidsouthconsulting.com/case-studies/case-study-4-un-undp-mongolia-1997-1999.html

The unfolding Global Financial Crisis in 2008, while caused by the collapse of the financial system, also presented an opportunity to apply the lessons learned in the late 1990s. The crisis was a roller coaster ride and provided a front row seat to what happens when too much debt and fraud overwhelms the financial system. A conference in Switzerland on African trade opportunities in 2008 was disrupted by the crisis as participants received frantic calls from London and New York and grabbed their bags and fled. Later that year I joined my wife (a foreign correspondent) in Reykjavik, Iceland as demonstrations erupted resulting from the collapse of their banks. Later this was called the ‘Pots and Pans Revolution’ (https://en.wikipedia.org/wiki/2009_Icelandic_financial_crisis_protests). See pictures of the demonstrations here: https://www.flickr.com/photos/15195144@N06/albums/72157613009834677

In 2009 I attended a UN conference in Geneva, Switzerland to evaluate the crisis and forecast where it might go. I wrote a blog about it here: http://www.davidsouthconsulting.com/blog/2016/1/8/global-crisis-report-from-the-un-conference-on-the-social-an.html

On the streets of Paris in 2009.

As this was happening something very exciting was emerging. While researching the e-newsletter Development Challenges, South-South Solutions for the United Nations Office for South-South Cooperation (UNOSSC), it became clear a quiet revolution was ocurring as a result of the rapid spreading of mobile and information technologies across the global South. That represented an exceptional crisis response tool where governments and the financial system were failing people. The e-newsletter was being sent to a global subscriber base across the United Nations and governments, reaching a highly influential audience in the global system. 

In 2011, this research went into the landmark first issue of the magazine Southern Innovator (called “a terrific tour de force of what is interesting, cutting edge and relevant in the global mobile/ICT space…”). This transformative magazine leveraged even greater change as it inspired many, as well as being cited as an influence on the UN’s and UNDP’s strategic priorities (the current innovation agenda and the focus on South-South cooperation). 

The repercussions of the 2008 Global Financial Crisis are still with us. Central banks continue with emergency measures (low interest rates, asset purchases, QE etc.) and consumer, government and corporate debt continues to rise. An ability to respond and recover will still be needed and David South Consulting will be there. 

© David South Consulting 2017

Wild East 17 Years Later | 2000 - 2017

Published in 2000 (ECW Press: Toronto), Wild East: Travels in the New Mongolia is 17 years old. It is also 100 years since the 1917 October Revolution in Russia that began the long experiment of the Soviet Union. Mongolia was the second country after Russia to adopt Communism.

Wild East author and foreign correspondent Jill Lawless.

The world has changed considerably since then; and so has Mongolia. The digital revolution has rolled across the planet, the attacks of 9/11 unleashed a wave of violence and wars, and Mongolia even became the fastest-growing economy in the world a few years ago (2012). But back when this book was researched, Mongolia was just coming out of decades of isolation within the Soviet orbit under Communism, and the country experienced in the 1990s “one of the biggest peacetime economic collapses ever” (Mongolia's Economic Reforms: Background, Content and Prospects, Richard Pomfret, University of Adelaide, 1994). 

"The years 1998 and 1999 have been volatile ones for Mongolia, with revolving door governments, the assassination of a minister, emerging corruption, a banking scandal, in-fighting within the ruling Democratic Coalition, frequent paralysis within the Parliament, and disputes over the Constitution. Economically, the period was unstable and rife with controversies." Mongolia in 1998 and 1999: Past, Present, and Future at the New Millennium by Sheldon R. Severinghaus, Asian Survey, Vol. 40, No. 1, A Survey of Asia in 1999 (Jan. - Feb., 2000), pp. 130-139 (Publisher: University of California)

That collapse made for some crazy times, as Wild East shows. 

Wild East was called one of the top 10 Canadian travel books of 2000 by The Globe and Mail. 

Reviews for Wild East: Travels in the New Mongolia by Jill Lawless:

The Globe and Mail

"Engaging...a revealing and often amusing account of her journeys through a beautiful country awakening from a tumultuous era."

The Georgia Straight, Vancouver

"This readable and reportorial book is the perfect antidote to ... those tiresomely difficult, pointlessly dangerous, and essentially fake expedtions undertaken against the advice of local people who know better."

Toronto Star

"Lawless introduces us to Mongolia's tabloid press, to teenage mineworkers, sharp-eyed young hustlers, nomads whose only possessions are their livestock, Mongolian wrestlers and Mongolian horse races."

Mongolian Buryat Civilisation Bookstore

"Wryly funny and wide-spectrum account of Mongolia's tumultuous rebirthing into the 21st century. Half the population lives in Soviet apartment blocks and watches satellite TV but the other half still eek a living from the exquisite, barren hills while living in nomadic felt tents. Of course, I'd much rather be in the tents... but whatever your preference, you will definitely enjoy Ms. Lawless' writing. She was editor of an Ulaan Baator newspaper for two years, and she tells it like it is. Very highly recommended."

Read a story by Jill in The Guardian (9 June 1999): Letter from Mongolia | Herding instinct 

Copies of Wild East: Travels in the New Mongolia by Jill Lawless are still available in various editions and languages.

A promotional poster for Wild East from 2003.

Canada's Globe and Mail called Wild East: Travels in the New Mongolia an "engaging portrait of modern Mongolia" (November 25, 2000).

The New York Post called Wild East: Travels in the New Mongolia "harrowing, hilarious" (April 26, 2016).

Explore further Jill Lawless' work here: https://muckrack.com/jilllawless

A sample of Jill's travel writing here: https://www.deseret.com/2007/4/8/20011005/dominica-escape-into-nature-on-this-eastern-caribbean-island#a-visitor-bathes-on-secret-beach-near-portsmouth-dominica-reaching-the-remote-spot-requires-a-walk-through-the-woods-followed-by-a-rope-descent-off-of-a-100-foot-cliff-face

UK edition (Summersdale Travel: 2002). Front cover images © David South and Liz Lawless.

© David South Consulting 2017

Update on Monday, April 19, 2021 at 10:00AM by David South

Reviews | Wild East: The New Mongolia

Jill Lawless is a Correspondent with The Associated Press based in London, UK. In 2000, her first book – Wild East: Travels in the New Mongolia – was published by ECW Press. Click through the site to read more about Jill and her book, Wild East: Travels in the New Mongolia.

“One of the top 10 Canadian travel books of 2000.” The Globe and Mail

Published in Canada

• Publisher : ECW Press; Illustrated edition (1 Jan. 2000)
• Language : English
• Paperback : 230 pages
• ISBN-10 : 1550224344
• ISBN-13 : 978-1550224344
• Dimensions : 15.24 x 1.6 x 22.86 cm
•  Images © David South and Liz Lawless.

Media Reviews

“They also offered a reading recommendation, the memoir-cum-travelogue “Wild East,” by Jill Lawless, a Canadian journalist who spent a few years in Mongolia in the mid-’90s, just after seven decades of Soviet Communism fell here. Her harrowing, often hilarious, stories of expat life, which I read on the plane on the way over, surpassed even those of my friends’ holiday.” The New York Post

“Lawless introduces us to Mongolia’s tabloid press, to teenage mineworkers, sharp-eyed young hustlers, nomads whose only possessions are their livestock, Mongolian wrestlers and Mongolian horse races.” Toronto Star

“This readable and reportorial book is the perfect antidote to … those tiresomely difficult, pointlessly dangerous, and essentially fake expeditions undertaken against the advice of local people who know better.” The Georgia Straight, Vancouver

“Wryly funny and wide-spectrum account of Mongolia’s tumultuous rebirthing into the 21st century. Half the population lives in Soviet apartment blocks and watches satellite TV but the other half still eek a living from the exquisite, barren hills while living in nomadic felt tents. Of course, I’d much rather be in the tents… but whatever your preference, you will definitely enjoy Ms. Lawless’ writing. She was editor of an Ulaan Baator newspaper for two years, and she tells it like it is. Very highly recommended.” Mongolian Buryat Civilisation Bookstore

Journal Reviews

“Jill Lawless’ book is not a scholarly tome per se, yet it is of definite value to the contemporary Mongolian scholar … Lawless’ period is 1997-1999, the heart of the tumultuous and ill-spent years of Democratic Coalition Government… a period of great hopes for democratic flowering and free market enterprise leading the nation to prosperity and progress.” Alicia J. Campi in Mongolian Studies

Historical dictionary of Mongolia, by Alan J. K. Sanders, Scarecrow Press, 2003.

---

Wild East: Travels in the New Mongolia recommended by the Embassy of the United States in Mongolia . 
“This is a good, fun book about life in Mongolia. … it’s an interesting and often amusing series of stories loosely connected.”

Reader Reviews

“Others sent me Jill Lawless’s Wild East: The New Mongolia, a compilation of pieces she wrote when she was editor of Mongolia’s English-language newspaper, the UB Post, during Mongolia’s transition from a socialist people’s republic to young democracy. With the wind shaking the frame of my ger, I lit the stove and read what these and other writers claimed to have found just outside my flapping felt walls.

“By the time veteran journalist Jasper Becker’s Mongolia: Travels in an Untamed Land arrived, I had put aside books written since Mongolia opened up to the West in the early 1990s. Most Western travellers and writers discovered the same sights from the back of a borrowed horse. Only Lawless had investigated the place over time on its own terms. The others, full of pith and vinegar and a standard set of assumptions about what they would find, built books on flights of fancy – golfing across Mongolia, following the path of medieval monks, ‘rediscovering shamanism’ – that were flimsier even than those that had set me in motion. The books were as exciting as museum diorama, papier-mâché models of their ‘medieval’ travels and capitalist fantasies.” Three Years in Mongolia: Trying to be a Travel Writer, Luke Meinzen, Kill Your Darlings, 10 April 2012

“I put Becker away and pulled out Wild East by Jill Lawless. She was heaps better than Becker, which wasn’t hard.” MÖRÖN TO MÖRÖN: Two Men, Two Bikes, One Mongolian Misadventure, Tom Doig, Allen & Unwin, 2013

“Wild East is less of a travel memoir, but rather essays and shorter narratives of creative non-fiction … it provides a compelling narrative into the historical moment when Mongolia dropped its isolation and began … its journey toward modernization.” Three Works of Travel Writing to Ignite Your Imagination (while we patiently wait for the pandemic to run its course), November 10, 2020

© David South Consulting 2021

A Steppe Back?: Economic Liberalisation and Poverty Reduction in Mongolia

Paper delivered to the School of Politics and Government, Birkbeck College, University of London, London, UK, 2000

“... the neo-liberal claim that transition is most successful in situations where state organs wither away is highly problematic. The state, it seems, is required as a fundamental regulatory formation in transition (Pickles and Smith 1998: 15).”

By David South

This paper will explore the profound weaknesses of economic liberalisation as a tool of poverty reduction in the developing world. I have chosen to explore the experience of the Northeast Asian nation of Mongolia; a country sandwiched between Russia and China which has been held up as an example of how economic liberalisation policies and strong personal freedoms can help a country make the transition from a command-based Communist country to free markets and democracy (UNDP Mongolia: The Guide 1997-1999). I argue that the slate of policies that constitute economic liberalisation (or “shock therapy”) in the 1990s - privatisation, price liberalisation and a free-floating currency - are, by themselves, poor mechanisms for the alleviation of poverty; that in fact they increase poverty rates and leave a legacy of weak institutions that are either unwilling to or incabable of helping the poor. The author will also draw on firsthand evidence gained while working in the United Nations mission in Mongolia for two years. 

Economic liberalisation policies have been inhibited from alleviating poverty by the cultural legacy of Mongolia’s economic development, which has de-emphasised private property and a money-based economy and placed a high emphasis on wealth being held in herds of animals and goods exchanged by barter. 

Mongolia, with its relative isolation and small population of 2.4 million (Human Development Report Mongolia 2000: 55), has been seen as a self-contained petri dish by economic liberalisers hoping to incubate a robust transition to free markets and democracy that can serve as an example to other post-Communist states. 

Mongolia’s journey towards neo-liberal ideas is unique. Unlike many other developing nations, Mongolia’s lively democratic movement that emerged at the end of the 1980s actively sought out these policies, and has enjoyed strong and widespread public support for them (though this has ebbed and flowed with the economic fortunes of the country). The 1996 election was fought and won by the Democratic Coalition based on these policies; the Coalition won 50 of the 76 seats in Mongolia’s parliament, and voter turnout was more than 90 per cent (Far Eastern Economic Review 1997: March 27). Thus, this is not a case of international institutions forcing upon a country policies against its wishes: the door was opened and the economic liberalisers were effectively invited in for a big bowl of fermented mare’s milk. 

However, it is also a country in which economic liberalisation has failed to deliver anticipated reductions in poverty for the majority of the population, and a strong case exists that it has made things worse. 

As the Human Development Report Mongolia 2000 states: 

In recent years however, the predominant vision has been neo-liberal. Backed by some international donors, reformers have argued that the best thing the state can do is to largely withdraw from the economy - by rapidly privatising state enterprises, and dismantling as many regulations and controls as possible, and allowing market forces to determine the production and allocation of goods and services. (Human Development Report Mongolia 2000: 13)

Liberalisation policies in Mongolia: A potted history

With the fall of the Soviet Union at the beginning of the 1990s, Mongolia woke up to find itself without its financial benefactor for most of the 20th century, Russia, and in the grip of a severe economic decline (Rossabi 2000: 9). 

But a new “big brother” was at hand. In 1991, economic liberaliser Jeffrey Sachs arrived in Mongolia (Fortune 1998: December 7). The arrival of Sachs and his ideas were to have a profound impact on the lives of Mongolians. He gathered a group of well-educated Mongolian economists to test economic liberalisation theories. 

Smith and Swain neatly summerise the source of economic ideas for the transition states:

The roles played by Francis Fukuyama (1992), formerly of the US State Department, and Jeffrey Sachs (1990), as policy adviser … translated this agenda into the all too familiar programme of so-called ‘shock therapy’. Shock therapy has been based on the view that capitalism could be … imposed by fiat and that the unleashing of the power of capital will inevitably allow the institutions, regulations, habits and practices associated with the ‘normal’ functioning of a capitalist market economy to emerge (Smith and Swain 1998)

The economic liberalisation project in Mongolia can be split into two distinct phases. The first more tentative phase under the Communist government extended from 1990 to 1992 and included privatisation of some state firms, the issuing of stock-market vouchers to most of the population and a failed attempt to enter the foreign currency markets (as a result of which 80 per cent of the country’s reserves were lost). This phase coincided with a new constitution, democratic elections and significant improvements in personal freedoms. 

The economic liberalisation project encountered serious difficulties from the start, and when all aid and subsidies from the Soviet Union were removed, the economy collapsed, with inflation spiralling to 320 per cent (Human Development Report Mongolia 2000: 13). Pro-economic liberalisation factions in the Communist government lost influence and the reforms stalled from 1992 until 1996, when they were re-started with a vengeance with the election of the Democratic Coalition. The Coalition was assembled from a hitherto fragmented opposition by the Washington-based International Republican Institute and mimicked the policies of the American Republican Party, including distributing a Newt Gingrich-style “Contract with the Mongolian Voter.”

The second phase of reforms, under Democratic Coalition Prime Minister M. Enkhsaikhan, was launched with the removal of price controls on fuel and electricity, increasing prices by 50 per cent (Rossabi 2000: 11). This phase of economic liberalisation also ran into difficulties, but its most successful policy achievements have been the privatisation of public housing, the removal of trade tariffs and the reining in of inflation. 

Poverty and economic liberalisation

Prior to the introduction of economic liberalisation, there was no extreme poverty in Mongolia, though it is difficult to gauge relative poverty since this information was not gathered. Rossabi notes, however, an extensive public welfare system was spread throughout the country: 

The Mongol economy required substantial subsidies from the Soviet Union. This command economy produced inefficient industries, few consumer goods, and scant increases in the size of the Mongol herds. The one-party system limited dissent and contributed to human rights abuses. On the other hand, the government provided extensive medical, educational, and welfare benefits to the young, women, the elderly, and indeed much of society. A growth in population, a longer life span, and high rate of literacy were byproducts of such state policies. (Rossabi 2000: 6)

All research data has shown an increase in poverty levels for a large portion of the population after 1990. Estimates vary wildly, but the United Nations Development Programme reports that 38.4 per cent of urban dwellers - and 32.6 per cent of rural residents - were poor in 1998 (Human Development Report Mongolia 2000: 23). School attendance is down, regional disparities have become more extreme, with the capital experiencing a boom fuelled by international aid (this totalled US $180 million in 1998 (Mongolia Update 1999: 27) and an expanding service sector. Provincial towns and smaller communities have seen local state-run businesses collapse, communications weaken, and a leaching of the population, either to the countryside to herd animals or to the capital to seek work. 

To cite one graphic anecdotal example of the process, a consulant for the Asian Development Bank told a 1998 donor agencies meeting of the irony of going into former factory towns, and telling the well-educated residents to turn to small crafts and itinerant vegetable growing rather than restarting the existing factory. 

Mongolia’s transition: theoretical dilemmas

As Pickles and Smith note in their work of political economy Theorising Transition: the Political Economy of Post-Communist Transformations, it is a profound mistake to ignore the distinctive evolution of each of the former Communist states. Mongolia’s attempts at transition to a market economy have been deeply marked by its cultural legacy, in spite of attempts to transcend this. While Ohmae may assert that “This movement up the ladder of development has nothing to do with culture and everything to do with the region’s ability to put the right policies, institutions, and infrastructure in place at the right time (Ohmae 1994: 21),” culture is crucial. It is simplistic to depend on a “stock set of policies to enable the supposed transition to capitalism at the end of the twentieth century to be achieved (Pickles and Smith 1998: 10).”

As Pickles and Smith add about post-Communist Eastern Europe: 

Treating post-communist Eastern Europe as a whole fails to recognise the ever-present diversity of some 27 states and 270 million people. Even at the end of the nineteenth century, such political-economic diversity was central to what was unfolding in the region … The diversity of historical experiences was replicated under state socialism, and while we would not argue for some form of historical determination, the state socialist economy in part relied upon these spatial divisions of labour and forms of social organization and institutionalised practices, albeit that large-scale attempts at forced industrialisation were made to eradicate the legacies of ‘peasant societies’ and uneven capitalist development. (Pickles and Smith 1998: 12)

Historically, Mongolia had never experienced capitalism, even in its most basic and embryonic form. Prior to the 1921 revolution which made Mongolia the world’s second Communist country, the vast majority of its citizens were divided between two occupations: nomadic herding, and the herding of souls as Buddhist monks. There was a small trading community, including a tiny community of Jewish traders - a legacy of the long-gone silk route that once plied its way through the Mongol Empire. But modern, urban, industrial capitalism as was present at this time in Europe was nonexistent in Mongolia. Concepts of capitalism, market economics and private property were introduced anew after 1990. 

Urbanisation, modernisation and industrialisation were wholly communist concepts in Mongolia prior to 1990. The traditional nomadic way of life measures wealth in terms of the size of the herd and places a high value on the ability to roam unencumbered by private property divisions and the ability to trade animals for other goods (though these needs are simple since a nomadic herder can only carry around a limited quantity of possessions). 

Economic liberalisation policies have, ironically, only exacerbated this trend, driving more of the economy into barter relations and actually pushing a portion of the population out of urban areas and into subsistance herding in order to survive (Partnership for Progress 1998: 2-3). 

Mongolia also offers some anomalies to theories of economic and democratic liberalisation. Lewis contends that democracy gives a nation a distinct economic advantage. “Average wealth, the degree of industrialisation and urbanisation and level of education are perceived to be much higher for countries which are democratic, education being of particular importance in this respect (Lewis: 1997).”

Yet as Fortune magazine noted, “No other Asian country enjoys more political freedom today than Mongolia. And no other Asian country has shown greater commitment to open markets. But Mongolia has received little reward for its efforts (Fortune 1998: December 7).”

The role of the state

Broad, Cavanagh and Bello see a strong argument for clear state direction in underdeveloped economies in the beginning stages, before allowing market mechanisms to dominate:

The South Korean economy’s resumption of growth after a brief period of stagnation at the onset of the 1980s and Eastern Europe’s slowdown after rapid growth in the 1960s confirm a more complex truth than the purveyed by free-market ideologues. Communist economies may propel societies through the first stages of development, but further growth into a more sophisticated economy necessitates a greater role for market mechanisms. (Broad/Bello/Cavanagh 2000: 392)

Strong state direction in economic development has been abandoned in Mongolia (it remains to be seen whether the re-election of the former Communist party in the summer of 2000 will alter this), and it can be argued that the over-dependence on market mechanisms has been premature. 

In fact, “the neo-liberal claim that transition is most successful in situations where state organs wither away is highly problematic. The state, it seems, is required as a fundamental regulatory formation in transition (Pickles and Smith 1998: 15).”

The absence of this regulation in Mongolia means that where once economic transactions were transparent, they have now gone underground. The example of cashmere exports (one of the country’s major foreign-currency earners) is particularly interesting. In 1998 the Mongolian government, faced with ever-dwindling tax revenues, introduced a tax on cashmere exports, ostensibly to protect the domestic cashmere-manufacturing industry. Whatever the true intention, the result was catastrophic for government revenues. Recorded exports fell by more than 98 per cent, to US $306,000 in 1998 from US $16 million in 1997 (Far Eastern Economic Review: 1999). The trade went underground and a handful of customs officials could not make a dent in a border as vast as Mongolia’s. It is a graphic example of how weak the central government had become, unable to raise revenues when necessary.

Economic liberalisation also tends to pull economic activity into the capital, as has been witnessed across the transition states. Centrifugal forces leave great swathes of poverty in rural areas and drain marginal urban centres of their skilled workers (Pickles and Smith 1998: 17). Mongolia is no exception to this pattern (Rossabi 2000: 10). 

Forces outside the market

After investigating the role of economic liberalisers in non-communist developing nations, Robert Bates found that market-oriented economists routinely overlook the role politics and political power play in wealth distribution: 

One reason that market-oriented economists tend to deny the centrality of politics to the development process is that they tend to discount problems of distribution. Those who adhere to the efficiency-and-growth position counter that if development produces a maldistribution of income, those who are losers in the short run could become winners in the longer run … From this viewpoint, governments are not just irrelevant to the development process, the actually impede it. (Bates 1988: 239-240)

There is scant contemporary research into the role of clan or family elites in modern Mongolia, but Rossabi, a Mongolia historian, believes they wield significant influence to this day, and have glided from communism to capitalism with ease (Rossabi 2000: 12). He asks, “Has there been sufficient turnover in the political elite, or does it represent the same consitutency as in the past? Has it expanded sufficiently to make itself more broadly representative of the Mongol population, including the herders and the countryside in general?”

In search of a purpose

Mongolia today is undergoing a basic economic dilemma familiar to Ricardo. It is at once transforming political and economic relations while also exploring what advantages it has to offer to the world markets, that old chestnut of absolute and comparative advantage. To date, its absolute advantage has been to be the source of raw materials, the two key foreign currency earners being copper and cashmere wool (Human Development Report Mongolia 2000: 30).

Its large herds of animals (some 34 million) are under-utilised as foreign-currency earners, and for the most part provide food for domestic consumption. One of the main reasons for this has been the rudimentary livestock techniques that exclude these vast meat and dairy resources from foreign markets (while the herds are raised without any use of chemicals, there is no quality control - a service once provided by the state before 1990). The distortions to the economy caused by these policies are highlighted in the Gross Domestic Product (GDP). In 1985, agriculture accounted for 14.3 per cent of GDP, and industry was 31.8 per cent. By 1998, agriculture (now mostly nomadic herding) accounted for 32.8 per cent of GDP and industry shrank to 24.1 per cent (Human Development Report Mongolia 2000: 56). The economy had contracted and was more focused on meeting basic domestic food needs.

Mongolia has a number of strengths it can draw on, however, with its impressive steps at building democracy and personal freedom chief among them. Lewis categorises former communist states into two groups, with group two taking an undemocratic route. Mongolia would rank in group one, since these countries have: “relatively rapidly established a reasonably viable constitutional order and multiparty system, having held free elections, seen unequivocal changes of government and generally established civil liberties (Lewis: 1997).”

The economic model used by the Democratic Coalition was the United States; Mongolia’s new leaders, dismissed other Asian nations - with their stoic, thrifty populations taking direction from the state - as poor examples for Mongolia. Like the US, Mongolia’s nomadic heritage values freedom and individual effort over the state, assert government advisers such as Tserenpuntsag Batbold, an economic adviser to the Mongolian prime minister’s office. 

Batbold is sanguine about finding a purpose for the country’s economy: “I’m always thinking about this, but I can’t give you an answer. This is exactly why we have to create a nondistortive economic environment, one which will show us the true comparative advantages of this nation (Asian Wall Street Journal 1997: May 27).”

Yet the process has been a difficult one. At a June 1998 international investors’ conference in Ulaanbaatar, the World Bank variously called Mongolia the “gateway to Russia”, the “gateway to China”, and the “gateway to Central Asia” (UB Post: 1998), giving the impression that both the global institutions and the Mongolian government would try anything in a desperate search for a purpose for the country’s economy. In fact, efforts in the 1990s to attract foreign direct investment (FDI) have not been fruitful. In 1999, FDI stood at US $70 million; it was US $200 million for all of the 1990s (Human Development Report Mongolia 2000). The belief that foreign private companies would pay for the country’s infrastructure improvements has run up against a wall: most foreign companies find it hard to see the benefits in investing in a country that only has a market of 2.4 million people and very high start-up costs. 

By 1998, even Sachs was striking a pessimistic note. He told Fortune magazine he disagreed with the pace of reforms and insisted infrastructure improvements - more roads, improved livestock breeding, investment in information technology - were the only things that would improve the country’s economy (Fortune 1998: December 7).  

Conclusion

Political power in Mongolia has switched from the hegemonic control of the Communist Party (and its overlords in Moscow) to be dispersed amongst a plethora of actors, including international aid organizations. Economic liberalisation has destroyed the state’s ability to guarantee a minimum standard of living. However, it has also expanded the number of small businesses in the country, and the GNP generated from the private sector has grown from 10 per cent of the total in 1990 to 64 per cent in 1999 (Human Development Report Mongolia 2000: 31). In spite of this, poverty rates remain stubbornly high, undermining assertions that free markets alone will generate wealth for the disadvantaged. 

Unfortunately, Mongolia has significantly misdiagnosed the origins of prosperity in its current role model, the United States. Economic liberalisation policies cling to simplistic notions of the evolution of capitalist markets in the US, ignoring the complex relationship between state-funded or regulated infrastructure development and economic growth. Post-communist countries have been ill-advised on what policies will actually reduce poverty rates. These societies do not fit into conventional ideas of underdevelopment; on the whole their populations are highly literate and skilled. While products produced by these countries may not be able to compete head-on with more technologically sophisticated equivalents in Western markets, there is little evidence that wholesale destruction of these industries will spurn economic growth and reduce poverty.