Note: This article is an abridged version of an in-depth country study produced as part of the Prosperity Index project of the Legatum Institute. Complete versions of all 12 are available on the Institute website.
Mongolia has shaken off the effects of Soviet domination in surprisingly short order. The successor to the old communist party has just surrendered power -- for a second time -- in a fair election. And the economy is booming: If all goes as planned, the completion of mammoth mining projects will double GDP before 2020.
Yet the source of Mongolia's new economic fortunes -- abundant mineral wealth -- gives pause. History offers few examples of countries riding a resource boom from poverty to affluence without mishap. In fact, that road is so commonly bumpy that it has a name: the resource curse.
Mongolian society did pass a big test in dealing effectively with the difficulties encountered on exit from communism. It remains to been seen, though, whether the institutions forged when there were doubts about Mongolia's viability as an independent state are up to the challenge of managing suddenly realized riches.
When public protests against the communist government erupted in mid-1990, Mongolia's chief benefactor/oppressor, the USSR, was crumbling and precipitately withdrawing its economic support. Its other giant neighbor, China was in no mood to embrace a new democracy. Who in their right mind would have expected that plans to create a liberal state in Mongolia would succeed?
Yet, the Mongolians have pulled off the improbable. Twenty-two years later, seven parliamentary elections have been held on schedule and 17 years of more or less steady economic growth might not seem all that remarkable an accomplishment until one remembers how dependent Mongolia was on crumbs from the Soviet table.
The authors both witnessed that transition. Narantuya, a junior lecturer of Marxist political economy in the winter of 1989, remembers the deep, pervasive fear when demonstrators challenged the rule of the Mongolian People's Revolutionary Party (MPRP). Surprisingly, the MPRP eventually opted for a peaceful transition, and scheduled multi-party elections for July 1990. A reformist government took over, with little understanding of the economic catastrophe it was about to confront.
Trade collapsed as Eastern Europe turned to the West and the USSR disintegrated. Hyperinflation threatened and living standards plummeted, with even staples in short supply. Murrell remembers searching for food in late 1991, going from one store to another and finding only one item -- massive chunks of Bulgarian feta that were apparently one of the last purchases under Communist-bloc trade agreements.