MONGOLIA's Pre-1990 ECONOMY: An Extended Overview

Mongolia, the second socialist country in the world, pursued non-capitalist and socialist paths of development and practiced a centrally planned economic system under the rule of one political party up to 1990. During this course, Mongolia was successful in transforming from a poor, pastoral livestock based agrarian economy into a dynamic, industry-driven economy. Former CMEA members were its donors and development partners, where the FSU played a dominant role. Owing to its manufacturing industry development based on the country's abundant livestock-origin raw materials, Mongolia could achieve relatively high and sustained economic growth. Rapidly expanding manufacturing industries and economy-wide increases in productivity drove overall improvements in the country's living standards. Social sectors, such as health, social security, education, culture and sports, maintained a stable share of total budget expenditure. There were no unemployment or income inequalities during this period. However, Mongolia continued to rely on foreign sources for its investments and foreign loans as the share of primary revenues grew. Also, per capita real growth was lower than that of the overall economy. Despite population growth, population income as a share of final expenditure and household consumption share of total use decreased, whereas that of administration expenditures increased. Overall, investments into tangible assets were preferred over boosting intangible assets or human capital incentives. This situation might have triggered dissatisfaction among the population and led to the demands for change that eventually put an end to the planned economy and socialist system practiced in Mongolia for nearly 70 years.