Mongolia Mongolia has followed a highly distinctive path of economic and political trans- ition compared with the other countries in this series. China, North Korea and Vietnam are still communist in a political sense and have adopted (to varying degrees) a more gradual economic reform process than Mongolia, which rapidly moved to political democracy and a market economy. In addition, Mongolia, in a sensitive geopolitical position between Russia and China, is a country rich in minerals eagerly sought by rapidly growing China in particular. This book pro- vides a comprehensive account of political and economic events in Mongolia, with particular emphasis given to events since the collapse of communism in Eastern Europe and the former Soviet Union. It covers the important topics in Mongolia’s recent development, including the political reform process and the economic reform process, including the transition to a market economic system, the role of the private sector, foreign aid, trade and investment, agriculture and economic performance (with due regard to climatic problems). Overall, this book provides a comprehensive account of economic and political developments in Mongolia, and is an important resource for anyone seeking to understand this country’s affairs. Ian Jeffries is Reader in Economics and a member of the Centre of Russian and East European Studies in the University of Wales Swansea. His main areas of research focus on economic and political developments in communist and transi- tional countries. Guides to economic and political developments in Asia 1 North Korea A guide to economic and political developments Ian Jeffries 2 Vietnam A guide to economic and political developments Ian Jeffries 3 China A guide to economic and political developments Ian Jeffries 4 Mongolia A guide to economic and political developments Ian Jeffries Mongolia A guide to economic and political developments Ian Jeffries First published 2007 by Routledge 2 Park Square, Milton Park, Abingdon, Oxon OX14 4RN Simultaneously published in the USA and Canada by Routledge 270 Madison Ave, New York, NY 10016 Routledge is an imprint of the Taylor & Francis Group, an informa business © 2007 Ian Jeffries This edition published in the Taylor & Francis e-Library, 2007. “To purchase your own copy of this or any of Taylor & Francis or Routledge’s collection of thousands of eBooks please go to www.eBookstore.tandf.co.uk.” All rights reserved. No part of this book may be reprinted or reproduced or utilized in any form or by any electronic, mechanical, or other means, now known or hereafter invented, including photocopying and recording, or in any information storage or retrieval system, without permission in writing from the publishers. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library Library of Congress Cataloging in Publication Data A catalog record for this book has been requested ISBN 0–203–96203–6 Master e-book ISBN ISBN10: 0-415-42545-X (hbk) ISBN10: 0-203-96203-6 (ebk) ISBN13: 978-0-415-42545-2 (hbk) ISBN13: 978-0-203-96203-9 (ebk) Contents Acknowledgements vii Introduction and summary 1 1 Political, demographic and economic background 4 Political background 4 Demographic background 8 Economic background 9 2 Politics 12 The transition to a democratic state 12 A chronology of political developments since 6 June 1993 15 3 The economy 42 Economic planning and reforms in the communist period 42 The transition to a market economy 45 Prices in the communist and post-communist periods 49 The role of the private sector in the communist period and post-communist privatization 50 Foreign trade in the communist and post-communist periods 59 Foreign aid in the communist and post-communist periods 63 Foreign direct investment in the communist and post-communist periods 67 Agriculture in the communist and post-communist periods 77 Economic performance in the communist period 83 Economic performance in the post-communist period 84 Appendix 1: the Soviet (Stalinist) economic system 91 vi Contents Appendix 2: general issues in the transition from command to market economies 104 Appendix 3: bird flu 117 Postscript 189 Bird flu 189 Economy 191 Bibliography 193 Index 204 Acknowledgements I am much indebted to the following individuals (in alphabetical order): At the University of Wales Swansea: David Blackaby, Dianne Darrell, Michele Davies, Peter Day, Chris Hunt, Paul Latreille, Nigel O’Leary, Lis Parcell, Mary Perman, Ann Preece, Paul Reynolds, Kathy Sivertsen, Jeff Smith, Syed Hamzah bin Syed Hussin, Clive Towse, Ray Watts and Chris West. Professors Nick Baigent, George Blazyca, Phillip Hanson, Paul Hare, Lester Hunt and Michael Kaser. (It was with great sorrow that I heard of the death of George Blazyca.) Russell Davies (Kays Newsagency). Liz Jones. At Routledge: Tom Bates, Alan Jarvis, Peter Sowden, Mike Wending and James Whiting. At Wearset: Matt Deacon, Claire Dunstan. Ian Jeffries Department of Economics and Centre of Russian and East European Studies University of Wales Swansea Introduction and summary Mongolia follows North Korea, Vietnam and China in the series, published by Routledge, entitled Guides to economic and political developments in Asia. China is the example par excellence of gradualism in economic transition and has greatly influenced policies in Vietnam and even in North Korea (where eco- nomic reform has been on a far more modest scale). Mongolia is very different, and it is not difficult to make a case for saying that the country could be classi- fied as having adopted a broadly ‘big bang’/’shock therapy’ programme for economic transition as opposed to ‘gradualism’. (See Appendix 2 for a general discussion of these issues.) In the real world, of course, there are always various combinations of relatively fast and slow elements in policy packages adopted by individual countries. But it is still useful to make a distinction between the two approaches. After all, China’s broad approach is patently different from that adopted, say, in Poland, Estonia or Slovenia! Mongolia is also different from the other three countries in being a multi- party democracy. Communist China, Vietnam and North Korea remain one- party states. The year 1990 was the watershed, with the first democratic election being held in July. Mongolia certainly has its fair share of political and eco- nomic problems, among them corruption, political inexperience within opposi- tion parties, government reshuffles and changes of government, factionalism, constitutional disputes, poverty, unemployment, and a disruptive and significant reorientation of foreign trade (formerly overwhelmingly dominated by trade with Comecon countries, especially the Soviet Union). But through thick and thin Mongolia has maintained a remarkable degree of political stability and commitment to political democracy and economic reform. Communism collapsed in Eastern Europe in late 1989, followed in late 1991 by the disintegration of the Soviet Union. Yugoslavia also disintegrated, and in a generally very bloody fashion. The world economies today are generally market- orientated to varying degrees. Mongolia can certainly be classified as one. Even politically communist countries such as China and Vietnam have been gradually moving increasingly in that direction for some time and are allowing the private sector of the economy to play an ever greater role. North Korea’s economic reforms are much more limited, but the direction is plain to see (albeit with some back- tracking towards the end of 2005 as regards reform in the food distribution system). 2 Introduction and summary Mongolia is a large country in terms of land area (half the size of India), but with a tiny population of around 2.8 million. Traditionally a country of pastoral nomads, it was the heart of the empire of Genghis Khan (1162–1227). Geo- graphically it lies sandwiched between Russia (the Tsarist Empire/the Soviet Union/Russia) and China. Mongolia, freed from Chinese control with the help of the Soviet Union, formally became the second communist (in Marxian terms socialist) country in 1924. It faithfully followed the Soviet lead politically and in terms of economic policy (see Appendix 1), but with the collapse of commun- ism Mongolia generally moved ahead of new Russia on both fronts. Mongolia was a classically poor country (with a low national income per head and most of the labour force working in agriculture, for example) and remains one despite considerable progress. It has important mineral resources. Although the means to exploit them have typically not been commensurate, things are looking up in that regard. The demand for Mongolia’s raw materials owes much to rapidly growing China. (See the companion book on China.) Appendix 3 deals with bird flu. ‘A bird flu outbreak in Russian Siberia worsened yesterday [10 August 2005] as neighbouring Kazakhstan confirmed cases of the deadly H5N1 strain of the virus and Mongolia reported its first cases’ (FT, 11 August 2005, p. 7). Until recently scientists believed that the major route of spread was through the transport of infected chickens and meat. But in the last few months out- breaks in which the virus appeared to have hopped from western China, to Mongolia, Russia and Kazakhstan – places that have little poultry trade between them – have highlighted the likelihood that wild birds have also disseminated the virus. (IHT, 24 August 2005, pp. 1, 4) (The appendix is detailed in part to bring the sections in the companion volumes on North Korea, China and Vietnam up to date.) Readers will note in the bibliography that I have published extensively on communist and transitional economies, but most books deal with groups of countries. Since the collapse of communism in Eastern Europe and the Soviet Union in and after 1989, the number of countries I have analysed has grown from fourteen to thirty-five! Owing to the large number of languages involved, I have had to rely overwhelmingly on English sources.