ABSTRACT Title of Document: WHY WAS MONGOLIA SUCCESSFUL? POLITICAL AND ECONOMIC TRANSITION IN 1990-1996 Narantuya Chuluunbat, PhD 2013 Directed By: Prof. Peter Reuter, PhD, School of Public Policy Mongolia’s historical, geographical, political, and economic circumstances seem to be closest to those of the Central Asian states. Yet, unlike these states, Mongolia was able to successfully transition to a democratic political regime and introduce far-reaching economic reforms. This dissertation analyzes this puzzle by focusing on the early transition period in Mongolia. The dissertation provides detailed account of political and economic processes during the ten years from 1987 to 1996. The account of events is based on primary data drawn from government and party documents, cabinet minutes, daily newspaper accounts, memoirs of the participants, and detailed interviews with the participants of the events. In addition to the detailed description, the dissertation provides alternative theoretical frameworks – as opposed to the structural explanations provided thus far – which could be useful in explaining why things happened the way they did in Mongolia. Namely, the dissertation brings in two groups of political economy theories – institutions and constitutional design and special interest and collective action theories –and attempts to explain the events in Mongolia through the lens of these theoretical arguments. The first chapter provides a comprehensive literature review on Mongolia’s political and economic transition and places it in a comparative perspective. The second chapter describes and analyzes the nature and extent of the partial economic and political reforms that were implemented in the late communist period. The third chapter describes in detail the political events that led to the collapse of the long-standing communist regime and the subsequent radical political changes that took place following the peaceful “democratic revolution”. The fourth chapter deals in detail with the economic shock the country faced with the withdrawal of the Soviet financial assistance, the first policy response, and the overall politics of economic decision making. I pay special attention to privatization, the cornerstone of early reform attempts. The last chapter summarizes, classifies, and prioritizes the variety of factors – historical, external, political, institutional, and cultural – that were identified as having contributed to the successful political and economic transition. WHY WAS MONGOLIA SUCCESSFUL? POLITICAL AND ECONOMIC TRANSITION IN 1990-1996 By Narantuya Chuluunbat Dissertation submitted to the Faculty of the Graduate School of the University of Maryland, College Park, in partial fulfillment of the requirements for the degree of Doctor of Philosophy 2013 Advisory Committee: Prof. Peter Reuter, Chair Prof. Madiha Afzal Dr. Kevin Jones Prof. Peter Murrell Dr. Clifford Zinnes © Copyright by Narantuya Chuluunbat 2013 Dedication to Bayartsogt, Gombo-Erdene, and Khorol-Erdene, for their enduring love and encouragement ii Acknowledgements There are many people who helped me to complete this dissertation. First and foremost, I would like to thank the chair of my dissertation committee Prof. Peter Reuter and de facto co-chair Prof. Peter Murrell, who had faith in me and guided me through this process. Thank you to Prof. Reuter for his wisdom and patience, continuous support and encouragement, and the many meetings we had at Le Pain Quotidien on Massachusetts Avenue. Thank you to Prof. Peter Murrell for his kindness and the numerous tricky questions and comments he gave on the earlier versions of the dissertation. I could not have had a more knowledgeable and experienced advisor than Prof. Murrell, whose knowledge of Mongolia’s politics and economics is profound. I also would like to thank other committee members who were always interested and very supportive: Prof. Clifford Zinnes for his long-time support, Prof. Madiha Afzal and Dr. Kevin Jones for their questions and suggestions which helped to improve this research. I would like to thank Prof. Allen Schick who was the inspiration to join the PhD program in the first place and guided my research at the earlier stages. I am extremely appreciative to the participants of the events who agreed to be interviewed for this research. I thank them for taking the time to share their experiences with me, which made a big difference for this dissertation. iii I benefited from the generosity of scholars who took the time to talk to me, answer my questions, and share their thoughts and resources, especially Dr. Ganbat Damba, Dr. Hashchuluun Chuluundorj, Dr. Munkh-Erdene Lhamsuren, and Ms. Erdemchimeg Sumiya. I am grateful to my colleagues at the Economics Department of the National University of Mongolia for their continuous support and understanding, and letting me go when I had to take a break to complete this dissertation. Finally, I would like to thank my family and friends who kept me going and assured me there was light at the end of the tunnel: my parents, my parents-in-law, my fellow PhD “shriekers” at the school. I especially thank my children, Gombo and Khorol, for the sacrifices they had to endure while I was working on my dissertation. Finally, I want to thank my husband Bayartsogt for his love and support throughout this journey, and generously allowing to probe my arguments on him. iv Table of Contents Dedication ..................................................................................................................... ii Acknowledgements ...................................................................................................... iii Table of Contents .......................................................................................................... v List of Tables ............................................................................................................. viii List of Figures .............................................................................................................. ix List of Boxes ................................................................................................................. x List of Appendices ....................................................................................................... xi Introduction ................................................................................................................... 1 Chapter 1 Mongolia’s Transition in a Comparative Perspective: Literature Review ... 6 1.1. Relative Political and Economic Performance of Mongolia ................................. 8 1.1.1 Political Freedom and Democracy ................................................................ 10 1.1.2 Macroeconomic Performance ....................................................................... 12 1.1.3 Economic Reform Measures ......................................................................... 15 1.1.4 Governance and Institution Building ............................................................ 18 1.1.5 Initial Conditions and Policy Choices........................................................... 22 1.2. Political Democratization: Literature Review .................................................... 28 1.2.1 Structural Factors of Democratization .......................................................... 28 1.2.2 Anthropological Views ................................................................................. 41 1.2.3 Democratic Consolidation ............................................................................ 43 1.3. Economic Reforms and Privatization: Literature Review .................................. 46 1.3.1 Macroeconomic Studies ................................................................................ 47 1.3.2 Economic Reform Agenda ............................................................................ 49 1.3.3 Private Sector Development and Privatization ............................................. 55 1.4. Research Methodology and Significance of Research........................................ 63 Chapter 2 Central Plan and Its Demise in Mongolia .................................................. 72 2.1. The Classical Central Plan and Its Institutional Characteristics ......................... 76 2.1.1 Command-and-Control System .................................................................... 79 2.1.2 Implicit Taxation System .............................................................................. 85 2.1.3 Fixed-Price System ....................................................................................... 89 2.2. Role of Foreign Aid and Trade ........................................................................... 93 2.2.1 CMEA Trade Regime ................................................................................... 94 2.2.2 Geopolitics of Foreign Aid ......................................................................... 101 2.3. Demise of the Central Plan and Attempts to Reinvent It (1987-1989) ............. 105 2.3.1 Economic Reforms...................................................................................... 105 2.3.2 Political Changes and International Developments .................................... 116 2.4. Conclusion: Slow and Ultimately Failed Reforms ........................................... 133 Chapter 3 Democratic Political Changes (1989-1996) ............................................. 141 3.1. Popular Uprising and Political Roundtable Negotiations (December 1989