This report provides background information on Mongolia, including political and economic conditions, the status of U.S.-Mongolian political and economic relations, and key security and foreign policy issues

Dumbaugh, Kerry

Morrison, Wayne M.

UNT Digital Library

Congressional Research Service ˜ The Library of CongressCRS Report for CongressReceived through the CRS WebCountry dataPopulation:   2.79 million (July 2005 est.) Area:   1,566,500 sq km (slightly larger thanAlaska)Location: Sandwiched between Russia (north)and China (south)Life Expectancy:  64.52 years (2005)GDP:   $1.6 billion (2004, World Bank Group)Resources: oil, coal, copper, molybdenum,tungsten, phosphates, tin, nickle, zinc,fluorspar, gold, silver, ironPrimary export partners 2004: China (50.7%);US(26.3%);  Canada (5 .3%); UK(4.3%);Russia(4.2%)Primary import partners 2004: Russia (31%);China (23.1%); Japan (8.4%); South Korea(6.7%)Order Code RS21155Updated May 3, 2006Mongolia:  Political and Economic StatusKerry Dumbaugh and Wayne  M. Morrison, SpecialistsForeign Affairs, Defense, and Trade DivisionSummaryOn January 10, 2006, Mongolia’s delicately balanced coalition governmentcollapsed and the Mongolian parliament chose a new Prime Minister in accordance withconstitutional requirements.  Mongolia has seen several reshufflings of governmentsince 1990, the year the Mongolian People’s Revolutionary Party (MPRP) declared theend of a one-party communist state and initiated democratic reforms with U.S.assistance.  Since then, Mongolia’s profile has been raised further by the 2005 visits ofPresident George Bush and Secretary Donald Rumsfeld.  This report providesbackground information on Mongolia, including political and economic conditions, thestatus of U.S.-Mongolian political and economic relations, and key security and foreignpolicy issues.  This report will not be updated.BackgroundOnce part of the Chinese empire,Mongolia achieved independence in1921 in a revolution backed by theSoviet Union.  After this, the communistMongolian People’s Revolutionary Party(MPRP) ruled for almost 70 years,maintaining a tenuous balance betweenthe Soviet Union and China andreceiving substantial financial assistancefrom each. Public demonstrations forpolitical pluralism in 1990 led to theresignation of the Communist MPRPgovernment, whose leaders declared theend of a one-party Communist state.Since then, Mongolia has beenundergoing a political and economictransition to a parliamentary democracyunder new constitutional rules adopted in 1991.  After decades of dependency on SovietCRS-21 Sources for this section include the Far Eastern Economic Review, the Wall Street Journal, andthe Foreign Broadcast Information Service.2 The MPRP, having shrugged off Communism, nevertheless did not officially adopt a new,Socialist agenda until March of 1997, when it amended its party platform.3 The International Republican Institute (IRI), in particular, has an extensive democracy-buildingprogram in Mongolia, conducting election training programs and assisting with parliamentarydevelopment. aid ( at one point worth nearly 40% of the country’s GDP), Mongolia has sought tobroaden its foreign contact and trade.  Political Trends and Conditions1Despite the official demise of Communism in Mongolia in 1990, the formerlycommunist MPRP has continued to play a dominant political role.2  In the first popularelections ever for Mongolia’s parliament in 1990, the formerly communist People’s GreatHural, the MPRP won 80% of the seats.  In turn, the same year, this MPRP-dominatedparliament elected an MPRP member, P. Ochirbat, as Mongolia’s first president.  Whilea new constitution in 1992 created a new parliament (the State Great Hural) to replace thePeople’s Great Hural, the MPRP also won a significant majority in the new body.  Its 71out of a total of 76 seats gave it firm control while Mongolia’s fledgling opposition partiesremained essentially powerless.  But the balance began to tip away from the MPRP in1994, when the party turned against Ochirbat after he vetoed legislation passed by theparliament.   When Ochirbat lost the MPRP’s backing in Mongolia’s first directpresidential election in 1993, he ran and won as an opposition candidate.  Weak Governmental Institutions, Corruption.   Mongolia’s legal andfinancial institutions remain underdeveloped and are a serious impediment to improvingthe country’s economy and business climate.  In part because of these weak institutions,the existence and enforcement of laws protecting private property is extremely limitedeven though the government passed a land ownership law in 2002 that allows the sale offarmland to individuals.  Governmental corruption also is becoming a more acute problemand was the subject of demonstrations and protests during the 2005 presidential electioncampaign. In some respects, and with considerable assistance from western democraticorganizations, the fledgling government has made great strides in the 15 years since itadopted multi-party politics.3  Still, Mongolia’s legislative processes remain in theirinfancy.  It was only in 2004, for instance, that Mongolia’s parliament, the State GreatHural (SGH), passed measures giving parliamentary committees separate budgets, staff,and rules of procedure.  The first public hearing by a parliamentary committee was heldonly in 2002, although western groups providing assistance are encouraging the SGH tohold public hearings as a routine part of the legislative process. Legislative Elections of 1996Mongolia’s parliamentary elections on June 30, 1996, were the first in which aneffective, organized opposition existed to challenge the MPRP’s 75-year rule.  The“Democratic Union,” formed over a period of about five years by a coalition of eightCRS-34 The two largest parties in the coalition were the Mongolian National Democratic Party (MNDP)and the Mongolian Social Democratic Party (MSDP).opposition parties, was the only party to field a clear and recognizable political platformto challenge MPRP candidates.4  It achieved a stunning electoral victory in what waswidely regarded as a free and fair election.  With 91% of the electorate turning out to vote,the Democratic Coalition took 50 of the 76 seats, giving it a majority in the parliament aswell as the support of President Ochirbat.  The new Mongolian leadership was quoted ascrediting the victory to help from U.S. political strategists and to study of Americanpolitical devices — the “Contract with America” in particular.Economic issues, political reform, and foreign relations dominated the 1996 electioncampaign. In a political strategy that many came to view as the cause of the MPRP’sdownfall, the party offered no firm prescriptions for Mongolia’s political problems or forits relations with other countries.  Democratic Union coalition candidates, on the otherhand,  put forward a more specific policy agenda, vowing to make government moretransparent, sell state-owned media organizations, establish pension plans, increaseteacher salaries, and reform Mongolia’s judicial system.  Finally, the coalition placed astrong emphasis on friendship with the West — primarily with the United States, whichthe coalition called Mongolia’s “third neighbor.” Instability in 1997 Mongolia held two related elections in 1997. In the presidential election on May 18,the results of the 1993 presidential election were reversed, and the presidency was wonby Natsagiin Bagabandi, the MPRP candidate, leaving the government divided betweenthe executive and the parliament.  Bagabandi won with 60.8 percent of the vote againsttwo other candidates:  the incumbent of seven years, President Ochirbat, from theDemocratic Union coalition, which retained its majority in the Great Hural from the 1996elections; and Gombojav, from the Mongolian Unity Party (MUP).  On August 20, 1997,Mongolia held an interim parliamentary election to replace Bagabandi, who had to giveup his seat in the Great Hural in order to become president.  Bagabandi’s formerparliamentary seat was won by MPRP member Nambaryn Enkhbayar.  To some extent, political analysts at the time regarded Bagabandi’s election as asymbolic gesture of public frustration over the drastic and painful economic reformsimposed by the new government after the 1996 elections.  Under those reforms,unemployment, crime, and taxes rose, while other financial and economic policies werenot entirely successful.  In addition, some believed that the Democratic coalition majorityelected in 1996 did not communicate its goals and policies effectively enough to thepublic to sustain its popularity in the 1997 presidential election cycle.  Most believed thatBagabandi’s election would not change the overall direction of democratic developmentand reform in Mongolia.  For one thing, Mongolia’s 1991 Constitution reserves onlylimited powers to the President — in principle, the power to veto — while giving mostpolitical power to the Great Hural, including the power to appoint government ministers.Nevertheless, the Democratic coalition’s 50-seat majority in the Great Hural, thoughsubstantial, was still one vote short of the margin needed to override presidential vetoes.CRS-4Break-up of Democratic Coalition, 1998-2000 Mongolia’s political situation in 1998 became more tumultuous, with a series ofpolitical crises leading to much legislative maneuvering between the MPRP-ledgovernment and the ruling Democratic coalition.  On April 17, 1998, Prime MinisterEnksaikhan announced his resignation in the wake of public discontent over harsh reformmeasures he had adopted to strengthen the Mongolian economy.  On April 23, 1998,Enksaikhan was replaced as Prime Minister by MNDP member Tsakhiagiin Elbegdorj,the majority leader in parliament, who was elected with 60 votes out of the total of 76members in the Great Hural.  Elbegdorj, in turn, was forced to resign by a no-confidencevote in the Great Hural on July 24, 1998 — making his government the shortest-lived inMongolia’s brief democratic history — because of his controversial decision on May 27,1998, to allow the state-owned Renovation Bank to merge into the privately held GolomtBank.  The parliamentary group of the MPRP charged that the decision on the bankmerger violated the Mongolian constitution and posed a threat to national economicsecurity.  In the ensuing months, the ruling parliamentary coalition struggled for severalmonths with President Bagabandi over the naming of a new Prime Minister, withBagabandi repeatedly rejecting the Great Hural’s choice of Davaadorj Ganbold.  In December 1998, the new MNDP leader, Janlavyn Narantsatsralt, became PrimeMinister. But his government fell in scandal in July 1999.  On July 30, 1999, the GreatHural endorsed as Prime Minister Rinchinnyamyn Amarjargal, another Democraticcoalition candidate.  Ultimately, in 2000, the strain of these political crises proved toomuch for the Democratic coalition.  It collapsed, setting the stage for a dramaticcomeback by the MPRP in parliamentary elections in July, when MPRP candidates won72 out of the 76 seats in the Great Hural.  That month, the MPRP leader, NambarynEnkhbayar, became Mongolia’s 5th Prime Minister in two years.  In December 2000, theremnants of the former Democratic coalition, including the MNDP and the MSDP,merged to form the Democratic Party (DP).  President Bagabandi was elected to a secondterm as president in May 2001.Coalition Government Collapse, 2006 Mongolia’s latest political crisis was born in the 2004 parliamentary elections whenan assortment of democratic-minded parties under the umbrella title MotherlandDemocracy Coalition (MDC) won 34 parliamentary seats (out of a total of 76) to theMPRP’s 38 seats.  After weeks of political gridlock, the two groups compromised to forma workable coalition government:  the Democratic Party leader, Tsakhiagiyn Elbegdorj,became the new Prime Minister and the MPRP assumed 10 positions in Elbegdorj’s 18-member cabinet.  But the troubled government struggled with growing unemployment,allegations of corruption, and factional differences.The increasing popular disillusionment with the coalition’s rule was reflected inpresidential elections in May 2005, when MPRP candidate and former Prime MinisterNambaryn Enkhbayar won the presidency (a less influential, though still powerful,position than that of Prime Minister) with 53.4% of the vote, compared to the 19.7%garnered by his Democracy Party rival, Mendsaikhani Enkhsaikhan.  On January 11,2006, the fragile government collapsed altogether when all 10 MPRP cabinet membersresigned in protest to what they said was the alliance’s ineffective governance and lossCRS-55 Innes, Claire, “Democratic Party rejects offer to join new coalition government in Mongolia,”Global Insight Daily Analysis, English, January 19, 2006.  6 Sources for this section include the Economist Intelligence Unit and the Foreign BroadcastInformation Service.7 Such aid accounted for about one third of Mongolia’s GDP.8 Global Insight projects real GDP growth at 6.8% in 2005.of public support.  The collapse was followed by days of protests in the capital — someprotesting government corruption and economic deprivation, some accusing the MPRPof attempting to seize power for itself.  The official government response to the MPRPresignation, however, followed established political procedures.  On January 25, 2006, theparliament chose Miyeegombo Enkhbold, MPRP chairman, as the new Prime Ministersucceeding Elbegdorj.  According to reports, the Democratic Party declined the MPRP’soffer to join in a “national unity” government and instead will function as an oppositionand establish a “shadow cabinet.”5  The next parliamentary elections are in 2008.  Economic Trends and Conditions6Mongolia’s economy is relatively poor and agrarian, with few industries butextensive mineral deposits.   Per capita GDP on a purchasing power parity (a commonmeasurement of living standards) in 2004 was $1,900 (equivalent to about 5% of U.S.levels).  Agriculture is the dominant economic sector (especially herding), accounting forabout one-third of annual GDP.  Mining accounts for about half of Mongolia’s grossindustrial output and about one-third of its exports.The collapse of the Soviet Union in the early 1990s had a severe impact onMongolia’s economy, which had employed Soviet-style economic policies.7  After Sovietaid ended, real GDP fell by 9.2% in 1991 and by 9.5% in 1992, leading to a significantdecline in Mongolian living standards.   Subsequently, the central government moved toprivatize its state-owned economy and adopt other free market reforms.  Between 1990and 2004, the proportion of GDP accounted for by the private sector rose from 4% to80%.  Such reforms enabled Mongolia to join the World Trade Organization (WTO) in1997.  Economic growth over the past few years has been uneven. Real GDP grew by only1.0% in 2000 and by 1.1% in 2001 (due in part to severe weather conditions, whichdamaged the agriculture sector).  However, real GDP grew by 3.9% in 2002, 5.0% in2003, and by 10.6% in 2004.8  In 2003, Mongolia agreed to pay Russia $250 million, anenormous sum for the government, to resolve most of its debt obligations in an effort tostrengthen investor confidence. Among other economic challenges Mongolia faces is aweak banking system (much of which is still state-owned and is thought to be saddledwith a significant level of non-performing loans), public resistence to land reforms, sharpfluxes in global mineral prices, high unemployment, weak rule of law, governmentcorruption, harsh weather conditions, and inadequate infrastructure.CRS-69 See Section 2424 of The Miscellaneous Trade and Technical Corrections Act of 1999, enactedas P.L. 106-36, effective on July 1, 1999 by Presidential Proclamation 7207.10 Source: U.S. Department of Commerce and U.S. International Trade Commission data. 11 November 21, 2005, [http://www.whitehouse.gov/news/releases/2005/11/20051121-1.html].U.S.-Mongolian RelationsThe United States recognized Mongolia in 1987 and since then has sought to expandcultural and economic ties.  In 1991, following the signing of a bilateral trade agreement,the President restored Mongolia’s most-favored-nation (MFN) trading status — nowreferred to as Normal Trade Relations (NTR) — under the conditional annual waiverprovisions of Title IV of the Trade Act of 1974.  NTR status was made permanent forMongolia effective July 1, 1999, obviating the annual trade status review process.9Mongolia remains a relatively minor (though growing) U.S. trading partner.According to International Monetary Fund (IMF) statistics, in 2005, U.S. exports toMongolia totaled $21.5 million, while imports totaled $144 million.10  According to theU.S. Department of Commerce, the most promising sectors for increased U.S. exports toMongolia include mining, construction, franchising, information technology, tourism, andmeat processing.  In July 2004, the United States signed a Trade and InvestmentFramework Agreement (TIFA) with Mongolia to boost bilateral commercial ties andresolve trade disputes.  Since 1991, the U.S. Agency for International Development(USAID) has provided around $150 million in assistance to Mongolia.  Major USAIDprograms have focused largely on promoting sustainable private sector-led economicgrowth and more effective and accountable governance.  Mongolia also is eligible forassistance under the U.S. Millennium Challenge Account.  One primary U.S. interest in Mongolia is in supporting the country’s ongoingtransition from a communist state to a nation with a market-based economy and ademocratically elected government.  U.S. support for both Mongolia’s political and itseconomic reforms has been tangible.  The United States strongly supported Mongoliawhen it joined the IMF, the World Bank, and the Asian Development Bank in 1991.Congress annually has earmarked U.S. assistance amounts for Mongolia to signal itssupport.  Anti-Terror Support.   Mongolia was an early political supporter of the U.S.global anti-terror effort, as well as an early logistics supporter, offering trainingopportunities and overflight clearances for U.S. forces.  Mongolia has contributed troops,engineers, and medical personnel to Operation Iraqi Freedom since April 2003.  At therequest of the United States, Mongolian forces also are participating in training artilleryunits of the Afghan National Army.  U.S. appreciation for this assistance led in part to lastyear’s visits to Mongolia by Secretary of Defense Donald Rumsfeld (in October 2005) andPresident George Bush (in November 2005) — the first U.S. Defense Secretary and U.S.President ever to visit Mongolia.  President Bush’s visit resulted in a Joint Statementreaffirming the U.S.-Mongolian “comprehensive partnership between their twodemocratic countries based on shared values and common strategic interests...”11

Mongolia: Political and Economic Status

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Mongolia: Political and Economic Status

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