Historical background

The Mongols gained fame in the 13th century when under Chinggis KHAN they established a huge Eurasian empire through conquest. After his death the empire was divided into several powerful Mongol states, but these broke apart in the 14th century. The Mongols eventually retired to their original steppe homelands and in the late 17th century came under Chinese rule. Mongolia won its independence in 1921 with Soviet backing and a Communist regime was installed in 1924. The modern country of Mongolia, however, represents only part of the Mongols' historical homeland; more Mongols live in the Inner Mongolia Autonomous Region in the People's Republic of China than in Mongolia. Following a peaceful democratic revolution, the ex-Communist Mongolian People's Revolutionary Party (MPRP) won elections in 1990 and 1992, but was defeated by the Democratic Union Coalition (DUC) in the 1996 parliamentary election. The MPRP won an overwhelming majority in the 2000 parliamentary election, but the party lost seats in the 2004 election and shared power with democratic coalition parties from 2004-08. The MPRP regained a solid majority in the 2008 parliamentary elections but nevertheless formed a coalition government with the Democratic Party. The prime minister and most cabinet members are MPRP members.

Economic overview

Economic activity in Mongolia has traditionally been based on herding and agriculture. Mongolia has extensive mineral deposits. Copper, coal, gold, molybdenum, fluorspar, uranium, tin, and tungsten account for a large part of industrial production and foreign direct investment. Soviet assistance, at its height one-third of GDP, disappeared almost overnight in 1990 and 1991 at the time of the dismantlement of the USSR. The following decade saw Mongolia endure both deep recession because of political inaction and natural disasters, as well as economic growth because of reform-embracing, free-market economics and extensive privatization of the formerly state-run economy. Severe winters and summer droughts in 2000-02 resulted in massive livestock die-off and zero or negative GDP growth. This was compounded by falling prices for Mongolia's primary sector exports and widespread opposition to privatization. Growth averaged nearly 9% per year in 2004-08 largely because of high copper prices and new gold production. Until late 2008 Mongolia experienced a soaring inflation rate with year-to-year inflation reaching nearly 40% - the highest inflation rate in over a decade. In late 2008 falling commodity prices in this import-reliant country helped lower inflation but by that time, the country had begun to feel the effects of the global financial crisis. Falling prices for copper and other mineral exports have reduced government revenues and are forcing cuts in spending. The global credit crisis has stalled growth in key sectors, especially those that had been fueled by foreign investment. Mongolia's economy continues to be heavily influenced by its neighbors. Mongolia purchases 95% of its petroleum products and a substantial amount of electric power from Russia, leaving it vulnerable to price increases. Trade with China represents more than half of Mongolia's total external trade - China receives about 70% of Mongolia's exports. Remittances from Mongolians working abroad both legally and illegally are sizable but have fallen due to the economic crisis; money laundering is a growing concern. Mongolia settled its $11 billion debt with Russia at the end of 2003 on favorable terms. Mongolia, which joined the World Trade Organization in 1997, seeks to expand its participation and integration into Asian regional economic and trade regimes.