Transition and Democracy in Mongolia

Mongolia has been one of the most interesting of the economies in transition from central planning during the 1990s. Massive external shocks in 1989 and 1990 led unexpectedly and suddenly to what was possibly the largest ever peacetime decline in a country’s gross national expenditure. At the same time Mongolia embraced democracy and rapid economic reform, which exacerbated the decline in output and high inflation. Despite expectations of a political backlash, the 1996 elections produced a pro-reform government which accelerated economic liberalization. By the late 1990s Mongolia was pursuing a policy of almost complete free trade and had one of the most flourishing democracies in Asia. The overall economic performance has not been bad, with positive output growth since1994 and inflation reduced to below ten percent by the middle of 1998 (Table 1). Admittedly, the decadal performance only looks good by the poor standards of post-Soviet economies, and a widening budget deficit in 1998-9 may not be sustainable. Moreover, as in all transition economies, poverty has increased (World Bank, 1996). 1 Nevertheless, under adverse initial conditions, Mongolian economic performance is