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USAID/Mongolia 

Operational Plan 

FY 2006 

June 12, 2006 
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Please Note: 

The attached RESULTS INFORMATION is from the FY 2006 Operational Plan and was assembled 

and analyzed by the country or USAID operating unit identified on the cover page. 

The Operational Plan is a "pre-decisional" USAID document and does not reflect results stemming 

from formal USAID review(s) of this document. 

Related document information can be obtained from: 

USAID Development Experience Clearinghouse 

8403 Colesville Road, Suite 210 

Silver Spring, MD 20910 

Telephone: (301) 562-0641 

Fax: (301) 588-7787 

Email: docorder@dec.cdie.org 

Internet: http://www.dec.org 

Portions released on or after July 1, 2006 
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Program Performance Summary FY 2005: BACKGROUND: In 1991, Mongolia shook off its 

dependence on the Soviet Union and embarked on far-reaching political and economic reforms. On the 

political front, Mongolia conducted a series of elections and peaceful changes of government and 

introduced a degree of political openness unheard of by previous generations. Simultaneously, Mongolia 

made significant steps toward establishing a market economy. The private sector, both formal and 

informal, now accounts for 75 percent of GDP--up from virtually nothing in 1991. The challenge over the 

next five years is to consolidate these still fragile changes and help Mongolia become an attractive place 

to invest money, do business, and create jobs. Mongolia's ability to reach this goal will hinge on its 

willingness to deal forthrightly with a series of "good governance" issues, including accountability, 

transparency, and corruption. 

Roughly the size of Alaska, landlocked between Russia and China, and isolated for centuries, Mongolia is 

now opening itself to the world economy. Mongolia's southern border with China extends for 2,800 miles, 

China's single longest border with any country. Mongolia's northern border with Russia extends for 1,900 

miles. From a political and economic standpoint, an independent, democratic, secure, and prosperous 

Mongolia will contribute greatly to stability in both Central Asia and Northeast Asia. 

Per capita income in Mongolia is around $650 a year. This figure does not fully capture the contributions 

made by Mongolia's increasingly vibrant "underground" economy, fueled by thousands of Mongolians 

who live and work in Asia, Europe, the United States and elsewhere. Mongolia's estimated GDP is $1.6 

billion, but a shadow economy survey in 2005 found that about half of GDP is hidden to avoid taxes. 

External debt is about $1.4 billion, almost equal to GDP. Most debt is on concessionary terms, primarily 

from the Asian Development Bank (ADB), World Bank, South Korea, Japan, and China. After several 

years of stagnation, Mongolia's GDP growth reached 4.0 percent in 2002, 5.6 percent in 2003, and 10.6 

percent in 2004. The recent growth in GDP is primarily attributable to increased mining activity (gold) and 

the recovery of livestock herds from losses incurred during harsh winters from 1999-2002. Growth in the 

mining sector was the principal contributor to the reduction in Mongolia's trade deficit. 

The termination of the Multi-Fiber Agreement (MFA) in 2005 had a significant impact on Mongolia's textile 

industry. About 30 percent of foreign-owned firms in the sector left Mongolia or simply closed their 

operations here. Estimates indicate that in the first ten months of 2005, total manufacturing output fell by 

26 percent compared to the same period in 2004, and textile and apparel output fell by 41.5 percent and 

69 percent over the same period, respectively. (Data in fixed prices.) Exports of finished textile products 

declined by 40.5 percent. Data on the impact on employment is not yet available, but the loss of jobs in 

the textile industry may be as high as one-third of the labor force in that sector. The "shock" was 

dramatic, and only the significant gains in the mining sector kept national aggregate indicators from 

falling. 

The performance of Mongolia's health and education indicators remains impressive, reflecting the large 

share of budgetary resources devoted to them. The percentage of those over 15 who can read and write 

is officially around 98 percent. In contrast to most developing countries, Mongolian women are more likely 

than men to graduate from high school. At the university level, more than two-thirds of all students are 

women. More than 95 percent of all Mongolian children are vaccinated; life expectancy is around 65 

years, and infant mortality is estimated at 23 per 1,000. In these areas, Mongolia outperforms most other 

countries at a comparable stage of development. 

A commitment to economic and political reform, an educated population, and an abundance of natural 

resources all combine to provide Mongolia with a unique opportunity to participate on the world stage. Yet 

much remains to be done. The reforms passed by Parliament not only need to be effectively 

implemented; they also must become part of a "living culture" that builds on the strengths of a market 

economy while adhering to the norms of a real democracy. In addition, Mongolia must continue to move 

aggressively to expand transparency, root out corruption, further reform the court system, and streamline 

commercial rules and regulations to encourage local entrepreneurs, attract foreign investment, and 

ensure a more just and democratic society for its citizens. 

U.S. INTERESTS AND GOALS: An effective USAID program in Mongolia supports several U.S. foreign 
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policy interests: 

-- First, a strong, secure, and prosperous Mongolia promotes stability in a potentially volatile region. A 

stable, independent, and democratic Mongolia contributes to overall stability and prosperity in the region. 

It is in U.S. national interests that Mongolia succeed. 

-- Second, a successful Mongolia provides a potent example to other countries on how to launch effective 

political and economic reforms. This positive example extends to central Asia, as well as to a wide swath 

of East Asia including Vietnam, Laos, and perhaps eventually North Korea. 

-- Third, Mongolia has become a reliable ally in the ongoing war on terrorism. The fifth rotation of 

Mongolian peace-keepers is currently in place in Iraq and a training unit is in Afghanistan. 

The two USAID Strategic Objectives (SOs) in Mongolia, private sector-led economic growth and more 

effective and accountable governance, reinforce and build on each other. Their achievement will do 

much to ensure stability in Mongolia and beyond. USAID projects focus on policy reform, a streamlined 

business environment, more competitive industries, judicial reform, and strengthening the Parliament and 

are coordinated with the rest of the Country Team, including the Economic, Political, and Public Affairs 

sections. A robust U.S. Department of Agriculture (USDA) Section 416b wheat program further increases 

the level of U.S. resources for Mongolia, and selection of Mongolia as a potential recipient of resources 

from the Millennium Challenge Account (MCA) may increase that level dramatically. 

DONOR RELATIONS: On a per capita basis, Mongolia ranks as one of the highest recipients of foreign 

assistance in the world. The ADB, the World Bank, and the UN are the largest multilateral donors, while 

Japan, the United States, and Germany provide the lion's share of traditional bilateral assistance. In 

Mongolia, USAID places a high premium on promoting cooperation among other donors and among 

implementing partners. 

Coordination between the donors is excellent in Mongolia. The close relationship between USAID, the 

World Bank, the IMF, the ADB, the United Nations, Germany, and Japan provides an outstanding 

example of effective donor coordination. Donors meet monthly under the auspices of the UNDP, and ad 

hoc meetings to discuss issues of urgent importance are convened as often as needed. In early 2004, the 

GOM began to create a more formal structure for donor coordination including the establishment of 

thematic working groups. This effort continues at a slow pace. 

In FY 2005, the Mongolian Government allowed its IMF Program to lapse. Unwilling to take corrective 

action on IFM recommendations about the Central Bank, budget deficit, and debt load, the Government 

has not re-engaged with the IMF, and no new program has been discussed. The next Consultative Group 

(CG) - the last one was in November 2003 - has been postponed indefinitely. In late FY 2005, donors 

convened under the auspices of the World Bank to discuss how best to focus and coordinate assistance 

to Mongolia given problems with the IMF and the inability to definitively schedule a CG meeting. This 

resulted in scheduling a technical meeting in late February 2006 that will serve as a forum for improved 

dialogue between donors and the Government of Mongolia and improved donor coordination. 

CHALLENGES: Mongolia's vast territory, small population, land-locked status, and distance from most 

world markets represent its greatest development challenges. Air travel to Mongolia is costly, domestic 

air links are sporadic, and the principal domestic airline is in serious financial trouble. A rail line 

connecting China and Russia runs through the middle of the country, and a shorter spur connects Russia 

with the eastern Mongolian town of Choibalsan. But there are less than 1,000 miles of all-weather road in 

the country, and travel in Mongolia usually involves long and arduous journeys on dirt tracks. The fact 

that most international trade must transit inefficient and expensive rail lines and ports in China and Russia 

adds to the cost of shipping and trade. 

The size and structure of Mongolia's economy pose a formidable challenge. Adverse weather conditions-

-summer drought, especially in the Gobi Desert, and extreme winter conditions everywhere--make 

herding a risky occupation for the 42 percent of Mongolians still employed in the agricultural sector. At the 
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same time, while world copper and gold prices are currently high and Mongolia enjoys a geographical 

advantage by virtue of its proximity to the rapidly growing markets of China, it is inevitable that the 

country’s emerging mining sector will ultimately be affected by the cyclical "boom or bust" nature of world 

mineral markets. 

Lack of capacity in both government and the private sector is a critical issue. This is partly because many 

of the concepts and basic building blocks of a market economy are imperfectly understood. To a certain 

extent, "success" has been measured more by the passage of new laws and regulations rather than by 

their effective implementation. Poverty remains stubbornly high at around 36 percent, and continued 

emigration from rural areas to Ulaanbaatar reflects the fact that economic activity and investment are 

centered in the capital. Questions of accountability and corruption also continue to be raised. A concerted 

and unwavering commitment to reform will be required from the Mongolian government if economic 

growth, led by the private sector, is to achieve desired levels. To date, although the general picture is a 

relatively optimistic one, GOM commitment has been mixed. For example, while support for a new, 

comprehensive tax reform package developed with USAID assistance has been strong, proposed mining 

legislation could have a dramatic, adverse impact on private sector mining that has largely fueled recent 

increases in GDP. Similarly, the GOM has yet to demonstrate a strong commitment to introduce 

concessions laws affecting public utilities, to enact new laws to increase investor confidence in the power 

sector, or to allow market forces to set the price of energy. USAID, along with the rest of the U.S. 

Embassy Country Team, will continue to press for a strong GOM commitment to enact and implement 

needed reforms. 

KEY ACHIEVEMENTS: USAID achieved important results in 2005, especially in economic policy reform, 

energy sector reform, business promotion, judicial reform, political party strengthening, and parliamentary 

reform. The level of mutual reinforcement within and between Strategic Objectives is exceptional, with 

national level policy reforms directly complementing the work of USAID’s on-the-ground business 

promotion projects, and the judicial work strengthening our work on the investment climate. Significant 

achievements in 2005 are detailed below. 

PRIVATE SECTOR-LED ECONOMIC GROWTH: USAID seeks to accelerate and strengthen sustainable, 

private sector-led economic growth by improving the enabling environment; making Mongolian industries 

and sectors more internationally competitive; and expanding economic opportunities for marginalized 

Mongolians. This was the second year for the Economic Policy Reform and Competitiveness Project 

(EPRC), which brought under a single contract USAID’s macroeconomic policy reform, industry 

competitiveness, privatization, and energy sector reform work. The governing hiatus after the June 2004 

parliamentary elections was resolved at the start of FY 2005 with the establishment of a bipartisan powersharing arrangement, which created an opportunity to effect major legislative changes that neither 

political faction could pass on their own. EPRC became deeply involved in development of a bipartisan 

package of legislative proposals for tax reform, work which could improve Mongolia’s investment climate, 

support domestic production and exports, reduce the fiscal burden on labor, and create new jobs in the 

private sector. This work, focused by the results of an external evaluation just completed, will continue 

into FY 2006 and a major tax package--including value added tax, personal income tax, and corporate 

income tax legislation--is expected to go before Parliament early in 2006. 

EPRC had many other successes in 2005. In collaboration with the ADB, it did major analytical work 

leading to the formation of a private equity fund which, as planned, the ADB will support as the anchor 

institutional investor. It also made Mongolian cashmere more internationally competitive through direct 

international marketing of cashmere retailers; began design of a private sector-led housing finance 

corporation and credit information bureau; improved transparency by initiating public on-line “super chats” 

with key government officials through the Open Government Website supported by the project; and 

created a core system of tourist information centers which has since been extended overseas to Tokyo 

and London with GOM resources. In the energy sector, EPRC institutionalized a system of internationally 

accepted accounting practices that, for the first time, accurately show the very difficult financial situation 

that the sector is in, and it worked with the Energy Regulatory Authority (ERA) on public hearing and 

dispute resolution procedures, market structure and rules, and several key pieces of draft legislation. 
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USAID’s efforts to expand economic opportunities for marginalized Mongolians focus on two areas--the 

Gobi Desert, which covers the southern third of the country, and the peri-urban areas around the 

country’s four largest cities. In both cases, USAID partners expanded economic opportunities by creating 

and strengthening businesses. In the countryside, the Gobi Initiative used the widely emulated human 

and institutional infrastructure established over the past few years to create or strengthen 242 rural 

businesses. It also increased the availability of and access to business information by over 485,000 rural 

Mongolians through publication of Rural Business News and a series of innovative radio programs. The 

GER Initiative, focused on the poor communities surrounding Mongolia's largest urban centers, created or 

strengthened 506 businesses in 2005, and helped over 1600 people find employment. Both Gobi and 

GER have aggressively worked to bring clients and local banks together through innovative methods of 

reducing bank collateral risk and administrative load. An external evaluation in FY 2005 gave the two 

projects very high marks. In both of them, women represent a significant proportion of the beneficiaries. In 

the Gobi II, although the herder population is predominately male, non-herder businesses are 

predominantly women-owned. In the GER project, the majority of entrepreneurs receiving business 

services, as well as the majority of job-seekers placed in permanent employment, are female. 

MORE EFFECTIVE AND ACCOUNTABLE GOVERNANCE: USAID helps make Mongolia’s government 

more effective and accountable by working with the judiciary to strengthen the courts and implement a 

comprehensive set of legal reforms; and with Parliament and the electoral commission to make political 

processes more competitive, effective, and transparent. 

Judicial reform is one of the most challenging elements of any good governance initiative. In 2005, 

USAID’s partner in judicial reform, the National Center for State Courts (NCSC), significantly improved 

court administration; strengthened the National Legal Center (NLC), which provides continuing education 

for judges (60 percent of whom are women) and other legal sector personnel; strengthened the Special 

Investigations Unit that reports to the Prosecutor General; improved the public’s understanding of their 

rights through innovative TV programming and information posters in all courts; continued to improve 

access to court information through public access terminals and a new national website; and dramatically 

improved the national lawyer qualification ("Bar") exam. 

The USAID objective of promoting more competitive, effective, and transparent political processes is 

implemented through a partnership with the International Republican Institute (IRI). After the dramatic 

successes of 2004, when political party work led directly to proportional representation in parliament, 

USAID focused party and electoral reform work on the presidential election of May 2005 and 

parliamentary by-election in August 2005. USAID trained more than 1000 poll watchers and producedf 

tens of thousands of poll watcher training manuals and both elections accurately “represented the will of 

the people.” The program focused its 2005 parliamentary work on promoting passage of the ethics 

legislation submitted to Parliament in August 2005 and implementation of the Parliamentary Procedures 

Law enacted in 2004 that could auger a major redistribution of power from the central Secretariat’s Office 

to the parliamentary committees. IRI organizing the Forum on Women's Partnership in Politics and 

Governance, resulting in a new stipulation in Mongolia's draft Election Law (currently being debated in 

Parliament) that requires that 30 percent of each party's direct candidates must be comprised of women. 

Also in FY 2005, USAID funded an assessment of corruption in Mongolia that was extremely well 

received by the GOM, donors, and NGO community, and which formed the basis for designing USAID's 

new three year anti-corruption project. 

The overall USAID program in Mongolia is supported by both regional and central resources. A new 

project was initiated in FY 2005 with funding from the Regional Development Mission/Asia to address the 

potential threat posed by HIV/AIDS. With central funds, USAID began the design of a Mongolian 

component of the Last Mile Initiative, which will support pilot efforts to extend the benefits of information 

and communications technology to the farthest reaches of the country. 

More information on USAID/Mongolia’s program is available at: http://www.usaid.gov/mn/ 
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FY 2006 Program 

SO: 438-001 Accelerate and Broaden Sustainable, Private Sector Led Economic Growth 

Improve Economic Policy and the Business Environment 

Improve Economic Policy and the Business Environment ($3,025,000 ESF). Building on the highly 

cooperative working relationships developed with the GOM, USAID is continuing to pursue critical 

economic policy reforms in 2006. A comprehensive, bipartisan “competitiveness-based” tax reform 

package developed with USAID assistance is being submitted to Parliament in FY 2006. This package 

will have far-reaching effects on the Mongolian economy, including a reduction in private sector 

investment costs that should increase foreign direct investment. USAID is assisting with key steps in the 

consideration of this package, including the conduct of workshops for the Parliamentary Tax Working 

Group. USAID is continuing to emphasize the important issue of power sector reform and eventual 

privatization as a crucial step toward improving the overall environment for growth. In 2006, a small 

cabinet-level unit to advise all Ministries on important policy options is being established and supported 

with technical advice. USAID is also helping the private banking sector establish a Housing Finance 

Corporation, with appropriate mortgage and other debt instruments, and is assisting with the privatization 

of the Credit Information Bureau. Principal Implementers: Chemonics in partnership with The Asia 

Foundation (TAF) and The Services Group. 

Improve Private Sector Competitiveness 

Improve Private Sector Competitiveness ($1,700,000 ESF). Direct assistance to marginalized Mongolians 

in the Gobi region (the Gobi Initiative Phase II) and in peri-urban areas (the Growing Entrepreneurship 

Rapidly (GER) initiative) is providing business development services (e.g., product development, 

marketing), as well as access to financing and business information. While the emphasis will remain on 

strengthening individual businesses, other activities include the development of new business 

associations to support private entrepreneurs. Business outreach is taking place through radio, television, 

and newspapers, including the popular TV series, the "Endless Labyrinth." USAID is also working to 

expand opportunities for small, poorer businesses to sell products to larger companies. As results from 

last year demonstrate, connecting small businesses with larger companies offers considerable potential 

for new job creation and can be a source of increased sales. Another focus is on the development of 

private-public partnerships and the facilitation of more interaction between small businesses and local 

governments. The Economic Policy Reform and Competitiveness Project (EPRC) is supporting the 

implementation of a new, private sector equity fund. This fund has the potential to dramatically increase 

the availability of investment capital in the country. EPRC is continuing its important work to help identify 

and exploit markets for Mongolian products and services such as cashmere, pet food, meat products, 

blueberries, and tourism. Principal Implementers: Mercy Corps International (MCI), the Cooperative 

Housing Foundation (CHF), and Chemonics. 

Increase Trade and Investment 

Increase Trade and Investment ($300,000 ESF). The focus of this component of the EPRC project in FY 

2006 is establishing and supporting a new trade negotiation, administration, and compliance unit within 

the Ministry of Industry and Trade. This support builds upon previous technical assistance (e.g., work on 

Mongolia's inclusion in the European Union's Generalized System of Preferences) in institutionalizing the 

GOM's capacity to analyze trade issues and effectively negotiate agreements. With the conclusion of this 

effort, USAID is ending its assistance in trade and investment and will not fund further activities under this 

program component beyond FY 2006. Principal Implementers: Chemonics and The Services Group. 

FY 2007 Program 

SO: 438-001 Accelerate and Broaden Sustainable, Private Sector Led Economic Growth 

Improve Economic Policy and the Business Environment 
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Improve Economic Policy and the Business Environment ($2,600,000 ESF). In FY 2007, USAID will 

continue to work with the GOM and the private sector to strengthen economic performance, especially the 

policy environment. The FY 2007 program should see more emphasis on efforts to increase sales, 

employment, and exports. Important policy reform work will continue, particularly the difficult task of 

following approved policies through implementation, and USAID will work with revenue departments and 

private companies to help them to fully understand and implement new tax regimes. By 2007, USAID 

plans to be more involved in helping prepare individual energy companies for privatization and in the 

elimination of specific regulatory bottlenecks to private sector growth. Principal Implementers: Chemonics 

in partnership with TAF and The Services Group. 

Improve Private Sector Competitiveness 

Improve Private Sector Competitiveness ($3,000,000 ESF). The Gobi II and GER projects will continue to 

provide business development services to herder groups and other businesses. Support to associations 

in the GER areas will be emphasized and possible ways to "privatize" some services will be explored. 

Information, product improvement, credit, marketing, and other business services will continue for rural 

and peri-urban businesses, but the focus may shift to institutionalizing some services (e.g. financial). In 

urban areas, USAID will continue efforts to link poorer businesses with larger companies to increase 

sales and generate jobs on a continuing basis. We will also explore the possibility of spinning-off certain 

components of the GER Initiative to private sector entities which have expressed an interest in "buying" 

them. EPRC will continue to support improvements in the competitiveness of Mongolian firms, including 

the creation of business groups with the potential to increase exports. Principal Implementers: MCI, CHF, 

and Chemonics. 

FY 2006 Program 

SO: 438-002 More Effective and Accountable Governance 

Promote And Support Anti-Corruption Reforms 

Promote and Support Anti-Corruption Reforms ($200,000 ESF). In FY 2006, USAID is implementing the 

Mongolian Anti-Corruption Support Project. Interventions are mobilizing civil society groups to advocate 

for and monitor the implementation of more comprehensive and effective anti-corruption laws. The initial 

focus is on conflict of interest legislation, complemented by public awareness campaigns and training for 

the media in investigative journalism. In addition, the Judicial Reform Project (JRP) is continuing its 

support to the Special Investigative Unit of the Prosecutor's office. Principal Implementers: The Asia 

Foundation (TAF) and the National Center for State Courts (NCSC). 

Promote and Support Credible Elections Processes 

Promote and Support Credible Elections Processes ($100,000 ESF). USAID is assisting the General 

Election Commission in implementing the new election law and in developing regulations on campaign 

finance monitoring. Assistance is continuing to support electoral reform to expand participation, 

particularly for women. Principal Implementer: International Republican Institute (IRI). 

Strengthen the Justice Sector 

Strengthen the Justice Sector ($2,000,000 ESF). In FY 2006, USAID is continuing support to improve 

court administration and case management. Training programs that previously focused on judges and 

court personnel are shifting to prosecutors and advocates, ensuring that all justice sector personnel are 

knowledgeable about new criminal and civil codes. Support to the National Legal Center, established with 

assistance from USAID, continues. The Center is now capable of conducting training without donor 

funding, but its ability to fund recurrent budget costs requires attention in FY 2006. Previously successful 
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efforts to improve case management are being extended to prosecutors' offices in rural courts. Customer 

service is being addressed through improved procedures in courtrooms that are helping people to 

understand and exercise their judicial rights. Public access terminals are being monitored and improved 

to ensure that they are being effectively used, and a new Internet website is being completed that 

provides case information to justice sector personnel, as well as the general public. USAID is supporting 

the development of an independent advocates association and is working with the General Counsel of 

Courts to improve budgeting and financial management. Principal Implementers: NCSC with sub grants 

to TAF and Pact. 

Strengthen the Legislative Function/Legal Framework 

Strengthen the Legislative Function/Legal Framework ($100,000 ESF). Activities in FY 2006 for the new 

Mongolian Electoral and Parliamentary Support program focus on the implementation of the 

Parliamentary Procedures Law and enactment of a new Ethics Law for members of Parliament. This effort 

includes continued support to implement new ethics rules and procedures. Support is being provided to 

strengthen the participation of women, and work is beginning to help establish a capacity within the 

Parliament to carry out policy research and analysis. Principal Implementer: IRI. 

FY 2007 Program 

SO: 438-002 More Effective and Accountable Governance 

Promote And Support Anti-Corruption Reforms 

Promote and Support Anti-Corruption Reforms ($400,000 ESF). In FY 2007, the JRP will expand its 

programs to increase transparency in the courts to encompass new public education activities and work 

will continue to strengthen the Special Investigative Unit and Judicial Disciplinary Committee. Principal 

Implementer: NCSC. 

Strengthen the Justice Sector 

Strengthen the Justice Sector ($1,500,000 ESF). In FY 2007, the Judicial Reform Project will focus on 

nationwide implementation of new, improved court procedures, as well as "universal" availability of case 

information through, among other means, the creative use of information and communications 

technology. The advocates association will be further strengthened and training will be extended to local 

level jurisdictions throughout the country. Surveys will be conducted to assess the public's view of the 

fairness and effectiveness of the judiciary. Principal Implementer: NCSC. 
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Results Framework 

438-001 Accelerate and Broaden Sustainable, Private Sector Led Economic Growth 

Program Title: Private Sector-Led Economic Growth 

 IR1.1: Improved Enabling Environment for Private Sector Growth 

 IR1.2: More Competitive Industries and Sectors 

 IR1.3: Expanded Economic Opportunity for Marginalized Mongolians 

438-002 More Effective and Accountable Governance 

Program Title: More Effective and Accountable Governance 

 IR2.1: Comprehensive Legal Reforms Implemented 

 IR2.2: Political Processes More Competitive, Effective and Transparent