Economic Transformation In Mogolia

Masa ryk Univers ity Faculty of Economics and Administration Field: Studies in European Economy, Public Administration and Culture ECONOMIC TRANSFORMATION IN MONGOLIA Bachelor Thesis Bachelor thesis consultant: Author: Ing Aleš Franc, Ph.D Baljmaa Zorig Brno, 2013 Masaryk University Faculty of Economics and Administration Department of Economics Academic year 2012/2013 SUBMISSION OF BACHELOR THESIS For: ZORIG Baljmaa Field: Studies in European Economy, Public Administration and Culture Topic: ECONOMIC TRANSFORMATION IN MONGOLIA Ekonomická transformace v Mongolsku Principles for the elaboration The goal of the work, problematic area, procedure and applied methods The goal of this work is to analyze and empirically appraise the synchronic changes, which took place in Mongolia during transition period Also how it impacted the current economy and society of modern-Mongolia The work will be written in the following methods: It will be summarized at the beginning and the complete summary will be done in the end of the work supporting the previous one Relevant empirical data are collected and classified in this work Comparison between economic system before and after the Soviet Union Figures and tablets are included in order to demonstrate the changes and situation better Size of the graphical works: approximately 20 tables and graphs Size of the work: 35-45 pages List of recommended literatures: NAYA J Seiji; TAN L.H Joseph Asian Transitional Economies: Challenges and Prospects for Reform and Transformation Singapore: Institute of Southeast Asian Studies, 1995 305 pages ISBN 981-3055-09-X KOLODKO; Grzegorz From Shock to Therapy: The Political Economy of Postsocialist Transformation United States: Oxford University Press, 2002 457 pages ISBN 0-19-829743-2 LAVIGNE, Marie The Economics of Transition: From Socialist Economy to Market Economy Hampshire: Palgrave Macmillan Publishing, Second Edition, 1999 328 pages ISBN-13: 978-0-333-75416-0 paperback Tutor of the work: Ing Aleš Franc, PhD Date of submission of the bachelor thesis: 07.01.2013 Datum of consignment of bachelor thesis and insertion to IS is stated within the valid schedule of academic year ––––––––––––––––––––––––––––– –––––––––––––––––––––– Head of economics department Dean In Brno 07.01.2013 Name of the author: Baljmaa Zorig Ti t l e of t he bachel or t hesi s : Economic Transformation in Mongolia Title of the thesis in Czech: Ekonomická transformace v Mongolsku De pa r t ment : Economics Tut or of the t hesi s: Ing Aleš Franc Ph.D Da t e : 2013 Annotation This diploma thesis engages in one of the important events in Mongolian economic and political history, which took place in 90s after fall of the Soviet Union The introductory chapters cover the main definition of transformation and the situation before implementing reform and changes in Mongolia The other chapters discuss the current changes, which held during the transformation and its economic-social impacts on the country The last chapters summons up all the considered issues and conclusions to give a final touch to this thesis Anotace Tato diplomová práce zkoumá jeden z nejdůleţitějších události v Mongolských ekonomických a politických historii, která se konala v devadesátých letech po pádu Sovětského svazu Úvodní kapitole se dotýkají hlavní definice transformace a předešlé situace před implementací reforem a změn v Mongolsku Ostatní kapitole se baví o nynějších změn, které se staly během transformace a jejich ekono-sociální důsledky v národu Poslední kapitole zahrnuje všechny povaţované výstupy a úsudky z předešlých kapitolech Klíčová slova Transformace, šoková terapie, privatizace, Mongolsko, centrální plánování, volný trh Keywords Transformation, shock therapy, privatization, Mongolia, centrally planned economy, free market Declaration I, hereby declare that I have written this thesis alone by myself and that I enclosed in reference all relevant resources that I have used to write this thesis In Brno 2013 Signature Acknowledgements Special thanks to my tutor Ing Aleš Franc Ph.D for assisting me in writing this bachelor thesis I am very grateful for him to his thoughtful comments and valuable suggestions that were great support in preparing the final version of the thesis Table of Contents Introduction 10 Characteristics of Mongolia 12 Economic situation before transformation in Mongolia 16 2.1 2.2 The First Period: Before Soviet Union 16 The Second Period: During the Soviet Union (The Mongolian People’s Republic) 18 Theoretical background of transformation 21 3.1 Goal of the transformation 21 3.2 Strategies of the transformation 24 3.2.1 Shock therapy 24 3.2.2 Gradualism 26 Transformation in Mongolia 30 4.1 Liberalization 30 4.1.1 Price liberalization 30 4.1.2 Foreign Market liberalization 32 4.2 Privatization 35 4.2.1 First Phase in Mongolia 37 4.2.2 Second Phase in Mongolia 38 4.2.3 Impact of the privatization process 39 4.3 Stabilization 41 4.3.1 Fiscal reform 41 4.3.2 Monetary reform 47 Post-transformation 52 Conclusion 54 LIST OF APPLIED SOURCES 57 ABBREVATION 61 LIST OF FIGURES AND TABLES 62 Introduction The transformation is an eminent phenomenon and an immensely vast evolution, which occurred in more than twenty countries around the world Significantly, it was a transition from one world to another: from communism to capitalism For countries with a centrally planned economy during the late 90s, this process marked an essential change Some economists predict that if the transformation had not taken place in 1990s, the socio-economic situation persisting in the nations would have been even worse The reason was imminent Communism was a system, which had been prevalent for over seventy “successful” years until it had started to collapse Sooner or later, countries had realized and were taking the necessary steps, which would lead to a more efficient new economic system in order to replace the old ineffective one Since 1960, the system of a centrally planned economy started exhibiting signs of experiencing a downfall Countries like Yugoslavia and Hungary began with undertaking partial changes to the system but it failed to contribute towards boosting economic efficiency Year after year, the old system proved to be incapable of resulting in sustainable economic growth Consequently, by the late 1980s, all communist countries acknowledged a complete collapse of a centrally planned economic system The transformation entailed the enormous task of changing the entire nation in a certain amount of time with as fewer burdens as possible being placed on nation‟s economy and society However, in accordance with the individual, social and political background of the communist countries, the final outcome might have diversified, although the same strategies and paths were selected Differences can be attributed not only to the geographic and cultural backgrounds, but also to the mentality of the people residing in the nation Mongolia was one of the many post communist countries It faced the same challenge as other post-socialist nations of switching from a centrally planned to a capitalist economy It certainly differed from the other countries and that is the reason why I highlight the different characteristics of Mongolia in the first chapter Despite the odds, Mongolia had almost entirely followed the same path undertaken by other satellite countries Its chosen strategy called “shock therapy” was well known among the European post-communist countries that made their way to the free market, following the motto “the quicker, the better” The trigger to the transformation resulted in an ever-increasing dissatisfaction regarding the current political system, which started from the mid 1980s in Mongolia It affected every aspect of people‟s everyday lives There was a continuous persistence of insufficient amount of food in shops; therefore, the government had to start implementing the ratio system Furthermore, citizens did not have the right to vote The people of Mongolia could not tolerate the old system anymore because of which they adopted a strong positive tendency towards the change This attitude of the people assisted in 10 in order to avoid placing burden on the banking sector Eastern Europe and countries of the Soviet Union, including Mongolia all faced this distorted situation of bad loans During 1994, 1996 and 1998, the banking sector of Mongolia experienced systematic crises In each of these years, there were significant bank insolvencies and several banks closed down The government funded costly rescue plans The 1994 restructuring program cost approximately over 2% of GDP The rescue plan undertaken during 1996-98 was comparatively larger, costing about 8% of GDP.79 This was because the situation became worse in Mongolia from 1996 onwards and people could no longer place trust in the bank and bank runs took place all over the country People formed long lines outside the banks in order to wait to draw out their deposits Deposits of banks decreased 35 % in a significantly short time 80 Consequently, it was vital for the government to take steps in order to ease the situation The government delivered new bank laws and gave Mongol Bank the privilege of having superior power over commercial banks It defined the Mongol Bank as an independent Bank of Mongolia that contributes its efforts towards improving the nation through monetary policy and controlling commercial banks through financial instruments in order to manage their credits, interest rates, and solvency As a superior power, Mongol Bank started to take relevant actions and closed down three commercial banks, which were working relatively poorly With the help of this newly enforced law, the banking system started to work efficiently since the new law began eliminating the flaws associated with the old system Moreover, the Mongol Bank took guidance from international organizations like Asian Development Bank, for institutional supervisory and management of commercial banks Part of the reform program in the banking sector was issuing government bonds amounting to 47.9 billion (5.2% of GDP) 81 in order to replace distorted loans and compensate for commercial banks losses faced by costumers from bankrupted banks Since Mongolia did not have any system entailing deposit insurance, the government compensated savings by issuing government bonds and the Mongol Bank intervened with more liquidity support Additionally, the Mongol Bank superintended all the commercial banks several times in order to eliminate the flaws of the banking system, and to immediately shut down banks which are working inefficiently Furthermore, the Mongol Bank was convincing the agency of special credits collecting, called the “Mongolian Asset Realization Agency”, to collect those overdue debts This reform program proved to be considerably effective and since then, Mongolian commercial banks were not functioning as poorly as they did during the beginning of the transformation As a result, the government successfully compensated 70 billion Tugriks of debts from bankrupted banks, which was equivalent to 40% of government revenue or 7% of GDP 4.3.2.2 Monetary policy Monetary policy is defined by the Ministry of Finance and is carried out by the Mongol Bank The Bank of Mongolia was established in 1991 With the introduction of 79 80 81 [11] Page 786 [4] Page 148 The Mongol Bank 48 the new law in 1996; government established its legal grounds of the power, management, organization, activities, and the regulation of foreign currency circulation by entrepreneurs, organizations and citizens in order to establish mechanisms to sustain the exchange rate of the Mongolian currency The Mongol Bank is mostly in charge of implementing monetary policies During the first half of 1991, Mongol Banks used expansionary monetary policies in order to finance the budget deficit as well as to cater to the needs of state-owned enterprises This was because Mongolia has started experiencing large external and domestic deficits when the Soviet Union terminated their concessional long-term assistance, which was financing all the deficits faced by Mongolia during the period of Communism 1990 1991 1992 1993 1994 1995 1996 1997 Table 4-9: State Budget Deficit, Money in circulation and Inflation State Budget Deficit Money in circulation Price of common goods, % 737 2,423 1,694 52,7 356 1,839 325,5 6,817 8,751 183 15,194 18,767 66,3 11,456 25,591 53,1 15,039 41,704 53,2 70,478 56,817 17,5 Source: Mongol Bank The table above displays how currency in the economy on average grew by percent annually during the period 1985-90, but increased substantially with 143 percent of an annual growth rate in a one-year period in 1991 This gave rise to inflationary pressures Price of common goods in 1992 increased more than 300 percent and almost 200 percent in the following year As shown in the table, prices of common goods had increased 24 times in years As shown below in the table, inflation reached its highest point during the transition, at around 300 percent in 1992 and 1993.82 The upsurge of inflation which took place during the transition process had been stimulated not only by printing money in order to compensate for the deficits, but also by several other factors such as regression of productivity of economy, relaxation of fiscal policy, devaluation of tugriks and price liberalization Table 4-10: Mongolia’s inflation rate and money supply Inflation rate 82 1989 - 1990 1991 121.2 1992 321.0 [15] Page 49 1993 286.4 1994 1995 1996 1997 87.6 53.1 44.6 20.5 Money supply (% change) 6.5 27.0 53.5 31.7 251.0 79.5 32.9 25.8 32.5 Source: Asian Development Bank, 1997 Factories and companies were facing deficits, which were subsidized by the government However, when the transformation began, the provisions of subsidies were ceased As a result, productivity of factories decreased rapidly after the transformation took place Subsequently, income tax from the factories also reduced drastically Within price liberalization, the government deregulated centrally controlled prices and prices were dramatically increased until they were the same as the market prices Majority of the prices were doubled, and such immense increases in price affected the persisting inflation rate in Mongolia In 1992, an agreement was based on the Structural Adjustment Policy between the IMF, World Bank and Mongolia Mongolia received financial assistance from the IMF due to its declining budget deficit and because of the reduction in the money supply due to expenditure on stabilization of the economic situation Thanks to the measures affiliated with the structural adjustment program, printing money became a slackened process and the inflation rate declined Like many other former socialist economies, Mongolia experienced a sudden surge in inflation during the first few years of transition, followed by steady disinflation in subsequent years Thereby, inflation rate decreased rapidly from 1994 It declined substantially from the 321% of 1993 to 44.6% in 1996 The rapid disinflation was due to the strict monetary policies, adaption of the floating exchange rate system and then liberalization of domestic prices Until June 1997, the rate fluctuated around 60% However, it decreased to 20.5% by the end of the year In 1998, prices continued following a downward course Since the mid-1990s, the Mongol Bank has implemented a monetary aggregate targeting framework The reserve money has been the operating target and the M2 has been the intermediate target.83 However, the Mongol Bank has not been rigorously abiding by its monetary targets in terms of practice (table below), and if seen from the perspective of an ex post, and in light of the observed inflation rates, it is appropriate for one to argue that this deviation from set targets does not seem unreasonable Table 4-11: Targeted and Actual Values for Monetary Aggregates, 1995-2006 M0 Growth Target Actual 83 M2 Growth Target Actual Mongol Bank 50 Inflation 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 11.1 21.5 13.9 20.0 15.0 15.0 28.7 36.5 23.1 18.7 49.9 18.6 8.2 21.9 14.5 17.0 19.7 15.0 38.3 31.7 19.8 4.4 10.8 11.2 13.6 35.8 15.2 18.0 20.0 25.0 32.9 25.8 32.5 -1.7 31.6 17.6 27.9 42.0 49.6 20.4 34.6 39.6 53.1 44.6 20.5 6.0 10.0 8.1 8.0 1.6 4.7 11.0 9.5 6.0 Source: Mongol Bank, 2012 Data on monetary aggregates put forward that ever since the mid-2000s, the relationship persisting between reserve money and broad money has turned unstable In view of the complexities faced whilst conducting monetary aggregate targeting because of the current demonetization process and the volatility of the money multiplier, the Mongol Bank focuses on sustaining economic growth over the medium term It also aims at maintaining CPI-inflation at a single-digit level Medium term sustained growth is set up as the policy target so as to elevate the welfare of the people, ensure macroeconomic stability, and bring about improved opportunities for larger demand capacity In the forthcoming years, it is expected that the economic capacity will increase and this will be followed by a growth in mining and infrastructure Monetary policy will enable increases in money supply, which is consistent with this projected growth Nevertheless, it is essential to take into account that Mongol Bank would be unable to carry out this policy if the government plans on conducting an expansionary fiscal policy, specifically higher social transfers as general elections come nearer In conclusion, the negative effects of the transformation like declining productivity, decreasing government revenue and rising budget deficits were not generally unexpected It would certainly take considerable time in transforming the inefficient banking sector into a healthy banking system Despite the rugged start, which was taken in 1997, the Mongolian economy and its financial sector began recovering gradually and therefore, the gross product slowly began to increase within a period of around years The Mongol Bank carried out its duties by ensuring the supervision of the functioning of commercial banks and by annihilating banks, which were functioning in a distorted manner 51 Post-transformation The problem with economic policy is that it is complex to measure the achievement and the power of the economy But all the economic indicators are dependent on each other That is why the “Magic Quadrangle” measures the successes of stable macroeconomics of a country Through this standard evaluative criterion, I will try to show post-transformation economic impacts on Mongolia compared to other transitional countries Magic quadrangle measures the nation‟s economy based on its GDP, inflation, unemployment and current account balance 20 15 Figure 5-1: GDP annual growth rate, by transitional country, % 10 2008 2009 2010 -5 2011 -10 -15 -20 Source: World Bank, 2012 The first indicator of the magic quadrangle is GDP growth As I mentioned in the introduction, Mongolia was among the fastest growing economy with 17.3% of GDP growth in 2011, thanks to the mineral boom The average GDP growth rate of Mongolia since 1990 has been 4.5 % percent, which is quite good for the emerging market In 2009, most of the countries experienced a drastic fall in their GDP growth because of the economic crisis of 2008 The same happened in Mongolia since the GDP growth was below zero However, China, on the other hand, is facing a stable GDP growth even during the economic crisis The stable growth can be explained by its gradual transformation strategy The next indicator is the unemployment rate However, unemployment and inflation were both a new phenomenon to the country after Communism Unemployment officially started being measured from 1991 when state-owned enterprises collapsed and shifted into private hands The economic decline, which took place during the transformation naturally led to higher unemployment and worsened the living standards of the population Unfortunately, unemployment has been affecting vulnerable groups of people overtime According to data from The National Statistical Office of Mongolia, it can be seen that by September 2012, the number of registered unemployed reached 44 095 people Younger population of ages ranging between 25 and 34 years creates 40% of 52 the total unemployment It is certainly a tragic fact that a large number of young people, who should instead contribute towards building up the economy, are actually unemployed Furthermore, brain drain is threatening our nation Nowadays, there is a significant trend persisting among young people to work abroad, especially in Korea Most qualified university graduates end up working in the heavy industry But this situation can be changed if the government starts indulging in intensive policies, which focus on creating more jobs Figure 5-2: Unemployment rate, by post socialist country, 2008, % China Czech Republic Estonia Bulgaria Russia Ukraine Azerbaijan Poland Latvia Hungary Slovakia Mongolia 4.2 4.4 5.5 5.7 6.2 6.4 6.5 7.1 7.5 7.8 9.5 14.2 10 12 14 16 Source: World Bank, World Development Indicators, 2010 Among most post socialist countries, Mongolia has the highest unemployment rate of 14.2 percent in 2008 This is a large number for a small nation, but hopefully the unemployment rate has a tendency to decrease In 2011, the unemployment rate decreased to 8.7% Even though was at dangerous level in 2008, due to the booming industry, the overall economy is noticeably improving 40 Figure 5-3: Inflation rate, GDP deflator, % 30 20 2008 10 2009 2010 2011 -10 -20 -30 Source: World Bank, 2012 53 The third indicator is the inflation rate As shown in the figure above, Mongolia is amongst those countries with a high inflation rate such as Ukraine, Russia and Latvia China, Czech Republic and Slovakia tend to have a stable inflation rate with the exception of the economic crisis As for Mongolia, the inflation rate was around 16 % in the year 2012 This rate was sufficiently above the inflation target of Mongol Bank, which was a single-digit level Inflation is increasing due to demand side pressures These pressures can be attributed to higher levels of government spending and by heightened food prices, especially that of meat The Mongol Bank is focusing on improving the situation by using tight monetary policy In order to be effective, it is necessary for this monetary tightening to be complemented by fiscal restraints The Mongol Bank is decreasing the pace at which bank lending is taking place This had been rising over 60 % in 2012 However, there is still a tendency for it to grow further, since the interest rate depicted by the central bank paper is still negative in real terms Therefore, it can be said that more monetary tightening is required However, unfortunately, government spending increased by 56 % in 2011 and is budgeted to rise by a further 32 % in 2012, and is fueled by rapidly rising resource revenues A large part of government spending was directed towards increases in wages and salaries, large amounts of cash handouts to the general population and burgeoning of capital expenditures It was possible for this pro-cyclical fiscal policy to result in another “boom-and-bust” cycle, especially because the global economy could face a substantial decrease in growth due to the continuing European sovereign debt crisis This could possibly result in significantly rapid declines in mineral prices, and subsequently, in government revenues Table 5-1: Current account balance of transitional countries, in mil USD 2008 2009 2010 2011 China 420 568 243 256 237 810 201 714 Czech Republic -4 773 -4 848 -7 601 -6 348 Estonia -2 216 682 549 476 Bulgaria -11 875 -4 256 -796 331 226 558 Russia 103 519 48 604 71 079 98 834 Ukraine -12 763 -1 732 -3 018 -9 006 Azerbaijan 16 452 10 174 15 040 17 144 Poland -34 957 -17 155 -24 030 -25 023 Latvia -4 492 283 723 629 Hungary -11 119 -193 1302 320 Slovakia -6 185 -3 161 -3 008 12 Mongolia -690 -341 -885 -2 760 Source: World Bank, 2012 The last indicator is trade balance Amongst those transitional countries, Russia, China, and Azerbaijan are facing surpluses in their current account balance There is no doubt to this since China and Russia are the world‟s biggest exporters and importers However, all of a sudden, since 2011, Mongolia is experiencing an enormous trade deficit In comparison with other transitional countries, the trade deficit has been 54 relatively less until the year of 2011 Since imports of mining-related equipment and fuel imports have increased, the trade deficit attained record levels of over billion USD Nevertheless, exports also rose significantly and reached 4.8 billion from 2.9 billion USD a year ago This was almost completely supported by coal shipments to China Furthermore, copper export has been revealing a poor performance since a significant period of time in comparison to coal export The current account deficit increased to 35 percent of GDP from 14 percent in 2010, but was entirely funded by record FDI inflows of 5.3 billion USD or almost 62 percent of GDP on a four-quarter rolling sum basis, and foreign currency reserves remained high consistently As a result, in the past few years, the Tugrik has appreciated in terms of both, nominal and real This will undermine the competitiveness of the non-mineral trading sector of Mongolia Conclusion The focus of the entire thesis is to evaluate the transformation process in terms of aspects of Mongolia from my point of view The transformation is a complicated process and it is difficult to tell whether it is over or not The more complex part is to conclude whether the country transformed successfully or not and whether it achieved the aimed economical level In the previous chapter, I tried to analyze the economic impacts after the transformation with basic measurements such as GDP growth, inflation rate, unemployment rate and current account balance Mineral boom and rapid GDP growth created an overheated economy This led to increase in inflation rates, but somehow unemployment rate has been decreased since the mining boom However, there are other important measurements that those indicators fail to point out Despite the mineral boom and rapid GDP growth, thirty percent of the Mongolian population still lives below the poverty line The correlation between unemployment and poverty is apparent When there is a persistence of a large number of unemployed workers, there is a high probability of high level of poverty prolonging in the nation Since the mid-1990s, one-third of the population has been living in conditions of extreme poverty After privatization, many industrial enterprises collapsed and this caused many Mongolians to return to semi-nomadic pastoral agriculture A huge part of the population‟s income depends on the agricultural sector and due to overgrazing and extreme climatic conditions over the previous years; there is an increased risk of poverty among the rural population 84 After privatization, many immigrants from rural areas moved to the capital city with the hope of finding new jobs Since most of them sold their homes and moved to Ulaanbaatar, they could not afford the expensive prices incurred to live in apartments and currently they are living in the suburban area of the ger85 area 84 85 [16] Page Ger is a Mongolian nomadic easy-transportable yurt 55 Figure 5-4: Poverty headcount ratio at $2 a day (PPP) (% of population), 2010 Azerbaijan Kazakhstan Latvia Russia Ukraine Poland Romania Mongolia Armenia Vietnam 2 2 2 4.1 13.6 21 48.4 10 20 30 40 50 60 Source: World Bank, World Development Indicators, 2010 The government has been strongly criticized by the opposition due to the heavy transitional costs incurred by the society and that the reforms were not improving the social situation Although the GDP of the country is increasing at fast pace, all the persistent unpleasant situations in the economy and society, such as conditions of high inflation, high unemployment rates and the increasing gap between the rich and the poor has resulted in feelings of nostalgia regarding the old, happy days when everyone had an equal share in public goods 86 In my opinion, Mongolia, being a small nation, did not have any other option but to be a part of Communism In fact, Mongolia did benefit from that era However, during the period of transformation, the government did not fulfill its duty to improve people‟s living standard Instead, the situation became much worse Mongolia faced a high rate of unemployment, inflation, and poverty compared to other post socialist countries in the last two decades Hyperinflation took place after liberalizing prices and the inflation rate is still high compared to other transitional countries This shows the inefficiency of the Mongol Bank towards targeting inflation properly Also, unemployment has been high during these two decades These indicators were considerably bad until the situation was eased by the mining boom This shows how the government performed an extremely poor job and was not prepared for the impacts, which came about after the transformation period The government of Mongolia blindly followed external guidance provided by international organizations such as the IMF and the World Bank The government‟s decisions were clearly not directed towards the impacts and results after the changes were implemented It seemed as if the main goal was to transform the economy as quickly as possible regardless of the impacts For example, the government liberalized the prices all at once without careful considerations during the transformation Because of that, the inflation 86 [2] Page 291 56 rate reached its highest peak The same reckless decision was made for the privatization process when the government carried out the whole privatization process as if it was just a handout of enterprises‟ shares to the population The privatization process should have instead been carried out keenly and must be considered as being extremely essential for the national economy‟s future The result of the poor privatization process was that most of the main factories had been closed down and Mongolia is unable to cater to its domestic needs of basic consumer goods, food products, and other essential basic supplies after the period of Communism The government only believed and trusted the pattern of shock therapy blindly The situation after transformation indicated how the shock therapy transformed Mongolia into one of the lowest income countries in the world People in the parliament were unaware of the risk of the transformation in that they mostly left it to the invisible hand of the free market After all, the main aim of the transformation was to transform the economy with macroeconomic stability A country with a high inflation rate, unemployment, persistence of poverty and yet with a high bureaucracy level in institutions does not seem to ensure macroeconomic stability, which I can say that the transformation failed to reach its aimed level So I cannot conclude the transformation in Mongolia was a success story Fortunately, only with the rich natural resource, Mongolia‟s socio-economic situation has started improving from the bad transformation era in last few years The mineral boom started accelerating the stagnant economy of Mongolia With the help of the state revenue from the mining sector, the government is able to deal with poverty and unemployment However, the mineral boom can cause the Dutch Disease (mentioned earlier), which would not bypass the Mongolians A knowledge-based economy is certainly the gateway to get through harsh upcoming times 57 LIST OF APPLIED SOURCES Literature and online sources [1] KOLODKO; Grzegorz From Shock to Therapy: The Political Economy of Postsocialist Transformation United States: Oxford University Press, 2002 457 pages ISBN 0-19-829743-2 [2] NAYA J Seiji; TAN L.H Joseph Asian Transitional Economies: Challenges and Prospects for Reform and Transformation Singapore: Institute of Southeast Asian Studies, 1995 305 pages ISBN 981-3055-09-X [3] ŢÍDEK, Libor Transformace české ekonomiky 1989-2004 Praha: C.H.Beck, 2006 304 pages ISBN 80-7179-922-X [4] National University of Mongolia; University of Manchester Mongolian Economy: Handbook for The Transitional Economy Ulaanbaatar: Admon 1999 379 pages [5] LAVIGNE, Marie The Economics of Transition: From Socialist Economy to Market Economy Hampshire: Palgrave Macmillan Publishing, Second Edition, 1999 328 pages ISBN-13: 978-0-333-75416-0 paperback [6] ZAGHA, Roberto; NANKANI, Gobind Economic Growth in the 1990s: Learning from a Decade of Reform Washington: The World Bank, 2005 364 pages ISBN 08213-6043-4 [7] BAABAR, B History of Mongolia Cambridge: The White Horse Press, 1999 448 pages ISBN 999-0-038-5 [8] ŢELEZNÝ, Teodor Mongolská lidová republika Praha: 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GOVERNMENT OF MONGOLIA State Property Committee [online].[cit.201212-01] Available at: http://www.spc.gov.mn/eng/index.php?option=com_content&view=category&layout =blog&id=7&Itemid=28 [39] WORLD BANK The World Development Report 2002 [40] WORLD BANK The World Development Report 2004b [41] BANK OF MONGOLIA Annual Report 2002e [42] ERDENET MINING CORPORATION [online].[cit.2012-11-07] Available at: http://www.erdenetmc.mn/index.php?lang=en [43] WCPA, IUCN [online].[cit.2012-11-07] Available at: http://cmsdata.iucn.org/downloads/dauriamining.pdf [44] INTERNATIONAL MONETARY FUND Staff Country Reports IMF Country Report No 10/52 Washington D.C February 2010 [45] BOKROS, Lajos čat k relativní prosperitě (Porovnání procesu transformace v ČR a Maďarsku) Finance a úvěr, 2001, c ISSN 0015-1920 60 ABBREVATION CMEA (COMECON) MPRP USSR IBEC UN WTO DUC Comintern SAL IMF Council for Mutual Economic Assistance Mongolian People‟s Revolutionary Party Union of Soviet Socialist Republics International Bank for Economic Co-operation United Nations World Trade Organization Democratic Union Coalition Communist International Structural Adjustment Loan International Monetary Fund 61 LIST OF FIGURES AND TABLES LIST OF FIGURES Figure 1-1: Mongolia‟s Foreign Trade Balance…………………………………………13 Figure 1-2: GDP, by sector 2012……………………………………………………… 14 Figure 3-1: Structural Adjustment Policy……………………………………………… 23 Figure 4-1: GDP growth rate of Mongolia (in USD mil.)……………………………….30 Figure 4-2: Annual inflation rate, %…………………………………………… ………32 Figure 4-3: Percentage of private sector in GDP……………………………………… 40 Figure 4-4: Tax Burden of Mongolia…………………………………………………….44 Figure 5-1: GDP annual growth rate, by transitional country, % 53 Figure 5-2: Unemployment rate, by post socialist country, 2008, % 54 Figure 5-3: Inflation rate, GDP deflator, % .56 Figure 5-4: Poverty headcount ratio at $2 a day (PPP) (% of population), 2010……… 57 LIST OF TABLES Table 2-1: Development of the total amount of industrial products in the MPR…… …19 Table 2-2: Growth and Structural Changes in Mongolia‟s Economy during the Industrialization Period………………………………………………………………… 19 Table 3-1: Growth of GDP among countries with transitional countries.……………….26 Table 3-2: Poverty among Chinese people………………………………………………28 Table 3-3: Real GDP annual percentage in the developing and transitional countries….29 Table 4-1: Trade Balance of Mongolia (in USD mil.).………………………………… 33 Table 4-2: Foreign Direct Investment (in USD million).…………………………… …34 Table 4-3: Exchange rate after liberalization of exchange rate………………………….35 Table 4-4: Government Spending (in percentage) ………………………………………42 Table 4-5: Mongolian State Budget Revenue (at current prices) ……………………….43 Table 4-6: Long term external debt by creditor countries (in mil.of transferrable ruble).45 Table 4-7: Mongolia‟s external debt (in mil USD)…………………………………… 47 Table 4-8: External Debt to GDP ratio………………………………………………… 47 Table 4-9: State budget deficit, Money in circulation and inflation…………………… 49 Table 4-10: Mongolia‟s inflation rate and money supply……………………… ………50 Table 4-11: Targeted and Actual Values for Monetary Aggregates, 1995-2006……… 51 Table 5-1: Current account balance of transitional countries, in mil USD…………… 56 62