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| >> Regional Overview >> Mongolia Overview | ||||||||||||||||||||||||
THE DEVELOPMENT CHALLENGE: Mongolia, a large, land-locked country with a small population, provides an important and increasingly rare example for Central Asia and beyond of how to manage a difficult economic transition within a democratic political framework. Mongolia has emerged in recent years as an important force for stability in a strategic part of the world. It shares long land borders with a rapidly emerging China to the south and the resource-rich Siberian region of Russia to the north. Few countries have been as friendly to the United States or as quick to voice strong support in the global war on terrorism. Mongolia’s transition to democracy is a remarkable achievement with ramifications that go well beyond its frontiers. Over the last decade, the country has had nine elections, three each at the local, parliamentary and presidential level. Governments have been elected to power in free and fair elections—and then peacefully relinquished that power in response to subsequent elections. Mongolia’s admirable record in this area stands in stark contrast to its five Central Asian neighbors, each of which is still governed by the same former Communist ruler who assumed power when these countries were granted independence more than ten years ago.
USAID’s challenge is to help Mongolia create an attractive environment for private investment, combat corruption with a functioning court system, strengthen public sector fiscal management, and spur economic opportunity in rural areas while continuing to consolidate its democratic transition by implementing reforms to encourage opposition party development. Nearly 80% of the Mongolian economy is now in private hands—up from virtually nothing a decade ago—and total GDP is estimated at $1 billion (or around $450 for each of the 2.4 million people in the country). However, the debt burden will soon be equivalent to Mongolia’s annual GDP and is a growing concern, as are annual economic growth rates that have stagnated in recent years at around one to two percent. Unpredictable weather conditions, including drought and two successive severe winters, have also had an adverse effect on an economy that is heavily dependent on the livestock sector. The USAID program is actively addressing these issues. Mongolia’s three largest trading partners are China, Russia, and the United States. Traditional sources of foreign exchange include minerals, meat and cashmere. In addition, a number of new sources of income have emerged in recent years, including tourism, textile exports, remittances from workers abroad and over flight fees. These over flight fees are paid by the more than 20,000 commercial airplanes that crossed Mongolian air space in 2001, many on the polar route between North America and East Asia. U.S. national interests in Mongolia center largely on its strategic location between Russia and China, two traditional rivals that are also nuclear powers and important global players. In addition, Mongolia provides an important though fragile example of economic reform and democratization in a potentially unstable part of the world. Finally, Mongolia consistently provides strong support for U.S. positions on many international issues, including those related to the ongoing war on terrorism.
USAID PROGRAM: USAID will devote $12 million in ESF to its Mongolia program in FY 2002 and has requested $12 million in ESF in FY 2003. USAID’s objectives are focused on the two key issues facing Mongolia, namely the shift to a market economy and the consolidation of a true democracy. Approximately two-thirds of USAID funding is devoted to promoting private sector led economic growth. Specific activities target Mongolia’s large nomadic and rural population; new private sector companies; and improved economic management. USAID has provided funds for vocational training for disadvantaged teenagers and will remain vigilant to the needs of vulnerable children. The remaining one-third of the program focuses on key institutions that are essential to a properly functioning democracy. USAID uses funds to help reform the judiciary; make parliament more efficient; and strengthen political parties. Specific programs are targeted, well crafted, and results oriented. OTHER PROGRAM ELEMENTS: Bilateral program resources are on occasion supplemented by additional funding. For example, farmer-to-farmer programs in rural Mongolia have in the past received support from both the USAID Mission and the Economic Growth, Agriculture, and Trade Bureau. In addition, USAID is now competing for potential central funding for rural microfinance. USAID works closely with the State Department country team to integrate foreign assistance programs with broader U.S. government objectives. For example, proceeds from the sale of Section 416(b) wheat support the USAID-funded Gobi Initiative. Similarly, international visitor programs routinely involve topics that help strengthen USAID programs in such areas as trade, investment, and transparency in government. The active military assistance program also represents an important element of U.S. foreign policy in Mongolia, among other things helping to prepare the Mongolian armed forces for potential peacekeeping duties in troubled parts of the world such as Afghanistan.
OTHER DONORS: Mongolia receives more than $300 million in foreign aid each year, one of the highest per capita assistance levels in the world. Though donors profess a commitment to coordination, problems sometimes emerge related to duplication. Regular Consultative Group (CG) meetings help promote coordination at a macro level. Sector-specific meetings on important topics such as energy and information technology are increasingly held. USAID is committed to a pragmatic, results-oriented approach that gives the U.S. assistance effort influence within the donor community well beyond the size of its budget. USAID plays a catalytic role in addressing some of the major issues in the country, including privatization, rural finance and democracy. For example, USAID’s Gobi Initiative represented the first significant donor program outside the capital city, providing a model for other donors to follow. Every major USAID-funded initiative in Mongolia also includes examples of cooperation with one or more other donors. The fact that USAID funding is entirely in grant form represents a notable contribution at a time when increasing concern is being voiced about Mongolia’s growing indebtedness. The Asian Development Bank (ADB) is the single largest multilateral donor. Other multilateral donors include the World Bank, International Finance Corporation, European Union, and various UN agencies. The European Bank for Reconstruction and Development (EBRD) will soon begin providing advisory services and would like to start a loan assistance program once its board approves. Japan is Mongolia’s major bilateral source of loan as well as grant assistance. Both the United States and Germany provide substantial grant assistance to the country. A number of other donors provide modest amounts of additional support. These other donors include Sweden (governance); Netherlands (energy conservation); Canada (rural and urban development); Korea (energy and health); the Czech Republic (health); Russia (humanitarian aid); China (housing); and India (information technology). Another possible and relatively unusual donor nation is the United Arab Emirates (UAE), which recently offered to help finance a hydroelectric plant in the countryside. Nongovernmental organizations (NGOs) such as the Soros Foundation and World Vision make important contributions to Mongolia, each managing annual development programs valued at around $3 million. Numerous other NGOs from the United States, Japan, Europe, and elsewhere also provide important support, especially in the social sectors. Program Data Sheets
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