1997: Stabilization at the heart of policy choices

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As we continue traveling on our 25-day journey through our 25 years’ history, today we look back at the year 1997. Before digging into what the economic and social situation of the country looked like back then and what our Bank colleagues accomplished in Mongolia during the year, I want to quickly reflect on my own life back in the year.

The year of 1997 happened to be a turning point in my life as it was the year when my family moved from the far western aimag of Khovd to the capital city Ulaanbaatar after having lived in the aimag center for well over a decade. The things I remember truly well from the time are, firstly, we did not have power in Khovd, so we had to study in candlelight and cook on gas stoves imported from China or using firewood inside our apartment. Another major thing I had much excitement about at the time was that we were able to get our modest one-bedroom apartment in Khovd privatized, sell it to a local to finally move back to the big city to get closer to our relatives in the south of the country. All in all, in my thirteen year old mind back in 1997, life was somewhat tough with basic living conditions in remote areas still rather poor yet things were changing as I know it, perhaps for the good. Years later now, when I look back into 1997, in my thirty something mind, surprisingly, I get a similar picture. The social and economic situation in the country was still challenging in many ways but the country continued to transition and change, perhaps towards more good.

In his speech at the World Bank Group and IMF annual meeting in September 1997 in Hong Kong, the Minister of Finance at the time, Mr. Tsagaan spoke about the major achievements of the Government during the year. Those included removal of price controls and liberalization of wages; reduction in import restrictions, abolishment of custom duties except for strong alcohol and tobacco products; simplification of the visa regime for foreign visitors; launch of a comprehensive privatization program covering both loss making and profit making enterprises; restructuring of insolvent commercial banks and tightening of banking supervision; changes to the tax legislation to create conducive environment for the private sector-led economic growth; and putting an end to subsidies to State Owned Enterprises (SOEs).

Despite the progress this young democracy continued to make, there remained many challenges it had to endure. At the heart of it all, macro-economic stabilization was the main policy priority as agreed by both the Government of Mongolia and international experts such as our current Country Director Bert Hofman and his colleagues who worked in Mongolia at the time to produce the 1997 Country Economic Memorandum. In this country economic memorandum under the main theme of Policies for Faster Growth, the Bank team had indicated that Mongolia’s strong growth after the 1990-93 transition recession was not sustained in 1996, inflation failed to come down further since 1994 and the country’s goal of bringing down inflation to 35 percent for the year was unlikely to be met. Further, the sharp decline in copper prices halved growth to 2.6 percent in 1996 and continued support to weak SOEs and the banking sector fueled inflationary pressure. The authors of the economic memorandum recommended that stabilization should remain the Government’s priority and cutting enterprise support, saving the windfall copper revenues and solving the banking crisis would help support stabilization in order for the country to reach its medium term growth potential of 5-6 percent.

In an effort to support the Government in implementing its policy priorities and its action plan, the Bank approved a few project operations for Mongolia during the year, namely Banking, Enterprise, Legal Reform Program (US$ 2 million) and Banking and Enterprise Sector Adjustment Credit (US$ 10 million). Moreover, in order to help improve living conditions in suburban Ulaanbaatar, the Bank also approved the Ulaanbaatar Service Improvement Project (US$ 16.9 million) in the same year. This project aimed to address water supply issues in the city suburbs by providing more kiosks, most of which are supplied directly from a water main instead of by trucks. This way, the distance between a water kiosk and residents was reduced to a maximum of 250 meters and some institutions were able to establish direct connections to the water main.

In the end, I must say the year of 1997 turned out to be another busy year for the World Bank in Mongolia with both analytical work and project operations picking up pace. It was also the year when a member of the World Bank Group, the International Finance Corporation (IFC) made its first investment in Mongolia to support a leather processing plant. Please stay tuned and continue enjoying the walk down memory lane with us.

Tomorrow we have 1998 under the spotlight with our Representative Office officially opened doors in the country. 

  (Please follow our 25 years in 25 days journey here and on twitter with the hashtag #WBG_Mongolia25th)

Authors

Badamchimeg Dondog

Financial Management Analyst

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