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Mongolia’s Transitions: from Baikhgui to Baigaa

Jim Anderson's picture
Also available in: Mongolian
Sometimes insights come from unexpected sources.  Ever since returning to Mongolia some months ago I have, naturally, been observing how things have changed since I last lived here in 1990s.  Many of the changes are immediately recognizable and even foreigners arriving for the first time could guess that the high-rise buildings and cafes are new. But it was a chance conversation with a fellow foreigner that drove home just how dramatic those changes have been.
Mongolia's black market in 1994
Mongolia's black market in 1994
photo: James H. Anderson
When I moved to Mongolia in 1993, the first Mongolian word every foreigner learned was baikhgui.  Not there; don’t have any; absent.  With this simple utilitarian word, one could concisely express the verbal equivalent of a shake of the head. 

“Do you have any bread?”
“What happened to the water/electricity/heat?”

Store shelves were empty and inflation was skyrocketing.  Savers saw their savings evaporate, and those with money had little to spend it on.  Those lucky enough to have dollars could find some goods at one of a couple “dollar shops”, receiving sticks of chewing gum as change.

In the early 1990s, Mongolia’s transition was about recovering from collapse and building the basic institutions of democracy and capitalism.  GDP had fallen more than 20 percent as the former socialist trading arrangements collapsed and Soviet aid was withdrawn.  The old tools of administrative control were still being applied—the basic institutions of markets had yet to be developed and officials, trained in Marxist-Leninist economics, had a basic lack of trust that the “chaos of the market” would not make things even worse.

So what was the unexpected source of the insight? Arriving in Mongolia a few months ago I was surprised that a fellow foreigner was unfamiliar with the word baikhgui.  Now, not everyone is linguistically strong (and I am worse than most) but for a foreigner in the early 1990s baikhgui was a word one could not avoid learning if one tried.

While the early 1990s taught foreigners the word baikhgui, by now the operative word has become baigaa; an equally utilitarian word, the verbal equivalent of a nod: We have it; yes, indeed; present.  The store shelves had filled long ago—nature abhors a vacuum and suitcase traders filled it—but in the intervening years the numbers of shelves and stores, and the selection of goods available, had grown tremendously.  Between 1993 and 2014, Mongolia’s average income per person tripled.
store shelves full of fruit in Mongolia today
store shelves full of fruit in Mongolia today
photo: James H. Anderson

Signs of change are also apparent in headlines.  A stringer for the wire services in the 1990s used to say that the only way he could get stories published was to have either Chinggis Khan or the ratio of animals to people in the first paragraph.  Indeed, even some academic authors shamelessly followed this dictum. (Ahem.)  Now, however, the foreign press is all about the mines.  When will the new deal for OT’s second phase be signed? What are the forecasts for copper/coal/gold prices? 

One thing that hasn’t changed is that Mongolia still likes to do things in a big way.  One of the more radical reformers in the transition from plans to markets, with an early mass privatization program in the 1990s, Mongolia embraced the mining economy with vigor when vast mineral resources were discovered.

Mongolia was not the first country to experience a natural resources boom, and there were lessons aplenty from other countries about how to manage the boom-bust cycles, how to “save for a rainy day” and, hopefully, avoid the resource curse.  But the magnitude of the adjustment that Mongolia had to manage is mind boggling. When I lived in Mongolia in the 1990s, foreign direct investment (FDI) averaged 1-2 percent of GDP.  Even as late as 2009, FDI was less than 15 percent of GDP.  By 2011, as investment in OT and other mines was in full swing, FDI had soared to 53.6 percent of GDP.  By 2011 the economy was growing at 17 percent, and the notion of a boom-bust cycle was entertained only by pessimists; and, as it turns out, realists.  And while the first case of “Dutch Disease” afflicted a relatively prosperous country, a country with strong market institutions, Mongolia was neither.  For a young democracy with young institutions, with the suffering of the depression of the 1990s still within memory, and with a citizenry eager for better days, the idea of countercyclical policies, of saving for a “rainy day”, found little support.

Despite the lessons from other countries on how to mitigate the resource curse, despite the great strides that had been made in revising legislation to do so, the exuberance for the boom part of the cycle was too much to resist. Spending went off budget to avoid spending rules, and new procurement rules were circumvented to build infrastructure more quickly. The international capital markets only validated the exuberance, lending Mongolia 20 percent of its GDP at rates comparable to those given to Italy.

Then the bust part of the cycle kicked in.  As quickly it ascended to the heavens, FDI fell back down to Earth as OT moved from development to operations and policy changes led some foreign investors to lose confidence—FDI as a share of GDP stood at 7.2% at the end of 2014.  Commodity prices fell (and look to continue falling), growth has slowed, and the repayments of foreign borrowings loom only two years away. Now that there is a downpour, the “rainy day” fund is in deficit.

There are no easy solutions to the current economic challenges. Months ago the Government acknowledged the difficulties and began to lay out a plan for righting the economy: bringing much of the off-budget spending on-budget, for example, and passing a package of measures to further shore up the economy. Such actions are commendable, but given the magnitude of the challenge, full implementation and deeper restructuring will be needed—and will require broad political support.

In these difficult times, I hope that Mongolians (and foreigners) will take a moment to remember back when baikhgui was the operative word in the Mongolian lexicon.  While times are tough, the Mongolian spirit is tougher.  Baigaa is the word now, and this applies as much to ideas for reform as it does for spare tires and goods on store shelves.


Submitted by Tuvshinbileg Ganzorigt on

Thank you for the very insightful article. I'd like to say that smart investors always look for the "silver lining" during difficult times. Right now is the perfect opportunity to "buy low" and "sell high" when the next commodity boom cycle comes during the next 3-5 years. I am a strong advocate for the "Mongolian story" and would like to encourage all investors to take a 2nd look at Mongolia. Afterall, we are sometimes known as "Minegolia" and it is inevitable that Mongolia is favorably positioned to enjoy all the future boom and, unfortunately bust, cycles. It is just a matter of perspective and risk tolerance of the investors that matter. If you are "high risk - high reward" investor, Mongolia is ripe for picking right now!

Thank you for the comment which shows optimism and provides a nice analogy, as well.  Contrarian investment strategies and countercycical macroeconomic policies both find empirical support, and both call for some fortitude to run against the herd and resist populist pressures, respectively.  Coincidentally, the "ahem" article mentioned in the blog also showed the returns to value investing in Mongolia, albeit in another era and for a different sort of investment.

Submitted by Tsend on

I'm Mongolian, it's my country. Thank you for you. It's really. Good.

Submitted by Ruxandra on

Truly inspirational, Jim. I enjoyed reading your news. Keep up the good work

Submitted by Ian Allardyce on

Hi Jim, I appriciate the positive spin of your article but one thing which must not be forgotten is how the World Bank encouraged rapid privatization and hyped-up free-market economics during the 90s across most of the post-soviet states. In hindsight would a better course of action been a slower, managed creation of Socialist Democratic Economies, similar to those in Scandinavia? Would Mongolia be in a better place today if so? With less inequality? You're likely have smarter answers to those questions than me! (I'm a TV professional living here since 2002). Thanks, Ian.

Evolutionary versus radical reforms revisited
     Ian, this is a great comment and question, one that I could not do justice to in the comment section of a blog. Indeed, I think it fair to say that historians will debate this issue long into the future.  But having pondered the same question over the years, I will offer some thoughts.
     There was actually a lot of debate in the early 1990s about just how fast reforms should be, about priorities, etc. Peter Murrell, my co-author for several studies of privatization in Mongolia (e.g., on corporate governance, the effects of competition and ownership), was an early proponent of taking a more evolutionary approach to reform, focusing especially on competition and fostering the nascent private sector, as opposed to the more radical approaches which favored mass privatization.  You can click here for some of his studies from the early 1990s on reform strategies.  (In fact, I see many parallels between those early debates and the present discussion surrounding “problem driven iterative adaptation”; but that will be the subject of another blog. :))
     So, there was some support, even back then, for your notion of a slower, managed creation of a new system; but not necessarily the one you suggest.  A key characteristic distinguishing the evolutionary from the radical approaches to reform is on where the focus should be: Should the focus be on incremental changes or on end-states?  In your comment, you are also focusing on an end state, albeit one less distant from Soviet-style planning than the fully liberal market economy.  The evolutionary approach focused on introducing competition and the private sector and building the institutions to support the new system, but with a view toward incremental changes, rather than a focus on a particular end-state.
     Having said all of that, I think your question is difficult or impossible to answer in any definitive sense since it is impossible to know the counterfactual.  A key motivation of the early reformers was to quickly give the population a stake in the new system so as to make the reforms irreversible—thus the voucher-based privatization programs, giving every citizen a stake, adopted by many countries, including Mongolia. It is difficult to know how the trajectory of political and economic reforms might have shifted if a different strategy had been adopted.  Yet, pondering the counterfactuals of major historical changes is irresistible and will surely tempt researchers, both future and present. Having lived and worked in Vietnam for six years before coming to Mongolia, I ponder this "evolutionary vs. radical" counterfactual often!
     A rather long attempt at an answer, smart or otherwise.  Thanks again for the comment!

Submitted by Bolormaa on

I am commenting on this blog relatively late, but it does resonate with my own experience. I am Mongolian, who lived abroad for many years. This summer I returned home and took a picture from Zaisan. The background is full of tall buildings, shopping malls and new roads. The same picture taken 15 years ago has nothing in the background! UB and the country are changing with an amazing speed (with a few negative "side effects").

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