needed, would be extraordinarily expensive to build ; and

(3) Cashmere and leather are the most important export goods, despite its fierce neighbor competitor, China.

## 3 -3 The Direction and Strategy of Mongolia’s Future Development

Despite recent progress in economic reform, Mongolia continues to face severe economic difficulties that reflect deeprooted structural weakness, inexperience with new indirect methods of macroeconomic management, and the magnitude of external shocks since 1990. The direction and the strategy of future development of Mongolia are considered as follows: (1) Mongolia is dependent on capital goods (machinery), investment goods (iron, chemical), consumer goods (cosmetics, medicine, processed food, drinks, cotton, paper, stationery) from other countries. However, it has a strong background in industrial development, and is a great supplier raw materials. Therefore, Mongolia has to enhance the present industrial structure. First, it has to extend the export competitive force of the copper industry, which can earn foreign currency. Second, it has to invite other industries and technologies from other countries. Third, it has to promote industrial infrastructure (transportation, telecommunication, energy, water) to stimulate private investments.

(2) Mongolia has a long history as well as rich tourist resources. At present the number of tourists from foreign countries is only about 15,000 per year. Tourism is expected to develop in the future. Regular flights with developed countries will stimulate not only tourism but also export of commodities. Foreign direct investment also drastically increases the accessibility of information.

(3) As mentioned above, Mongolia has a high-level labor force. It is important to use these labor forces because (a) it is effective to develop food and leather industries which can procure their materials in domestic market, and (b) Mongolia must develop an import substitute industry (soap, toothbrush etc.) which can produce on a small scale.

(4) Mongolia is rich in rare metals, such as molybdenum, tungsten etc. These resources have the possibility to become one of the most important industries.

## 4 Evaluation of the Transition to a Market Economy

It is said that the transition to a market economy is divided into two types. One is the “big bang,” the other is “gradualism.” Most of the Eastern European countries followed the Big Bang type. Mongolia’s reform too, is apparently not gradualism. Mongolia’s transition is different from the other Asian transition countries. Moreover, Mongolia’s economic structure is different from the Eastern European countries’ structure. Mongolia was dependent heavily on the former Soviet Union in comparison with the Eastern European countries. And the Eastern European countries were suppliers of the processed goods to the former Soviet Union, yet on the other hand, Mongolia was a recipient of the former Soviet Union. And Mongolia has been hit by severe external shocks at the same time as it is seeking to bring about a radical transformation of its economy. Stabilization was necessary with or without structural reform, because the source of the shocks was external. Mongolia did not have the time in advance of choosing when to reform, how fast to reform, and how to carefully sequence various components of reform. There is, essentially, an absence of “prerequisites”