Mongolia is situated some 1,600 kilometers from the Pacific Ocean via China and its population is spread across an area the size of Western Europe. In a country with low rainfall and temperature extremes, nomadic pastoralism was the universal occupation until the 1960s.
The communists overlaid this traditional nomadic culture with an orthodox socialist system. Nomads were forced into large animal-husbandry cooperatives (negdels). Mongolia's capital Ulaanbaatar and a few other cities became industrial centers, dominated by very large state enterprises. Some tentative market liberalization occurred in the 1980s with the advent of perestroika (moderate economic "restructuring" as envisioned by then-Soviet leader Mikhail Gorbachev), but did not go far. Worse, the reforms left big enterprises largely unregulated, lacking the disciplining force of either government planners or market competition.
The MPRP won the first multi-party election comfortably, the new democratic forces being disorganized and unable to field candidates in many rural constituencies. Yet, driven by the fear of being on the wrong side of history (or perhaps just worried about future demonstrations), the MPRP selected an eager reformer and staunch anti-Soviet, Dashiin Byambasuren, as prime minister. In forming a coalition cabinet, he placed economic reform in the hands of the more radical members of the new democratic parties.
The first real economic reform occurred in January 1991 with the freeing of many prices, the adjustment of others to better reflect costs, and a doubling of salaries to offset the resulting increase in the cost of living. But at the same time, the government was using the printing press to finance expenditures.
Inflation peaked at 270 percent in 1993 and was contained to single digits by 1998. GDP, down by a relatively modest 22 percent, began to grow again in 1994. Foreign government assistance, together with IMF and World Bank aid, helped Mongolia immensely. But success also reflected the depth of the government's political will and rapidly growing technical competence -- along with lots of forbearance on the part of ordinary citizens.
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