1993: Attention turns to Mongolia’s nascent private sector

Continuing with our reflections on the 25 year partnership between Mongolia and the World Bank, today we look at 1993.  With GDP having fallen 20% since the transition began, and with an ambitious mass privatization scheme underway, Mongolia was ready for the economy to turn around.  But the rebound would not come just yet.  GDP fell another 3.2% in real terms, and consumer price inflation, which had only just become measurable in a robust way, checked in at 268% in 1993.  

A new Economic Transition Support Credit was passed to finance the critical imports of equipment, spare parts, and other essential inputs needed for the coal and copper mines; essential imports for Mongolian Railways; and to provide resources for the import of lubricants and the replacement of old, inefficient gasoline pumps for the Mongolian Petroleum Import Concern. Keeping machinery working was still a priority.

While much of the earlier reform program focused on privatization of the state-dominated enterprise sector, by 1993 attention was beginning to shift to the nascent private sector.  “The Development of the Private Sector in a Small Economy in Transition” examined privatization and the increasingly evident corporate governance problems inevitable when privatization precedes institutional reforms. The report also analyzed the impediments to private sector growth: state controls over imports, state licensing of exports, and centralized procurement all were identified as culpable.  Reflecting the newness of the system, even the question “what is the private sector?” needed clarification.
 

The report found that “the foremost problem faced by private entrepreneurs is limited access to foreign exchange to pay for their imports.”  The parallel exchange rates were finally unified in May 1993.

The year 1993 was also the year I first moved to Mongolia.  My reflections on what I learned about economic development, the Mongolian language, and Mongolian perseverance can be found here.

Tomorrow we look at 1994, assessments of vulnerable groups and the financing of education.

*Prepared in collaboration with Bolorma Gurjav.

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