The United States established diplomatic relations with Mongolia in 1987, when it was still a Communist state, and since then has sought to expand bilateral cultural and economic ties. In 1991, following the signing of a bilateral trade agreement, President Bush restored Mongolia's most-favored-nation (MFN) trading status—now referred to as Normal Trade Relations (NTR)—under the conditional annual waiver provisions of Title IV of the Trade Act of 1974. That NTR status was made permanent (PNTR) effective July 1, 1999, obviating the annual trade status review process. In 1990, the ruling Mongolian People's Revolutionary Party (MPRP) declared the end of the country's one-party communist state and initiated democratic reforms with U.S. assistance. Since then, the country has been an enthusiastic practitioner of democratic government, although not without some difficulty. Mongolia has seen several reshufflings of government, for instance—the most recent in 2008-2009, when the MPRP won a majority in the State Great Hural and elected the head of the Party as Prime Minister (2008), and the Democratic Party Chairman won popular election as Mongolia's president (2009). This report provides background information on Mongolia, including political and economic conditions, the status of U.S.-Mongolian political and economic relations, and key security and foreign policy issues. Once part of the Chinese empire, Mongolia achieved independence in 1921 in a revolution backed by the Soviet Union. After this, the communist Mongolian People's Revolutionary Party (MPRP) ruled for almost 70 years, maintaining a tenuous balance between the Soviet Union and China and receiving substantial financial assistance from each. Public demonstrations for political pluralism in 1990 led to the resignation of the Communist MPRP government, whose leaders declared the end of a one-party Communist state. Since then, Mongolia has been undergoing a political and economic transition to a parliamentary democracy under new constitutional rules adopted in 1991. After decades of dependency on Soviet aid (at one point worth nearly 40% of the country's GDP), Mongolia has sought to broaden its foreign contact and trade. Mongolia's legal and financial institutions remain underdeveloped and are a serious impediment to improving the country's economy and business climate. In part because of these weak institutions, the existence and enforcement of laws protecting private property is extremely limited even though the government passed a land ownership law in 2002 that allows the sale of farmland to individuals. Government corruption also is becoming a more acute problem and was the subject of demonstrations and protests during the 2005 presidential election campaign. In some respects, and with considerable assistance from western democratic organizations, the fledgling government has made great strides in the 15 years since it adopted multi-party politics. Still, Mongolia's legislative processes remain in their infancy. It was only in 2004, for instance, that Mongolia's parliament, the State Great Hural (SGH), passed measures giving parliamentary committees separate budgets, staff, and rules of procedure. The first public hearing by a parliamentary committee was held only in 2002, although western groups providing assistance are encouraging the SGH to hold public hearings as a routine part of the legislative process. Despite the official demise of Communism in Mongolia in 1990, the formerly communist MPRP has continued to play a dominant political role. In the first popular elections ever for Mongolia's parliament in 1990, the formerly communist People's Great Hural, the MPRP won 80% of the seats. In turn, the same year, this MPRP-dominated parliament elected an MPRP member, P. Ochirbat, as Mongolia's first president. While a new constitution in 1992 created a new parliament (the State Great Hural) to replace the People's Great Hural, the MPRP also won a significant majority in the new body. Its 71 out of a total of 76 seats gave it firm control while Mongolia's fledgling opposition parties remained essentially powerless. But the balance began to tip away from the MPRP in 1994, when the party turned against Ochirbat after he vetoed legislation passed by the parliament. When Ochirbat lost the MPRP's backing in Mongolia's first direct presidential election in 1993, he ran and won as an opposition candidate. Mongolia's parliamentary elections on June 30, 1996, were the first in which an effective, organized opposition existed to challenge the MPRP's 75-year rule. The "Democratic Union," formed over a period of about five years by a coalition of eight opposition parties, was the only party to field a clear, recognizable political platform to challenge MPRP candidates. It achieved a stunning electoral victory in what was widely regarded as a free and fair election. With 91% of the electorate turning out to vote, the Democratic Coalition took 50 of the 76 seats, giving it a majority in the parliament as well as the support of President Ochirbat. The new Mongolian leadership was quoted as crediting the victory to help from U.S. political strategists (such as the International Republican Institute and the National Democratic Institute) and to study of American political devices—the "Contract with America" in particular. Economic issues, political reform, and foreign relations dominated the 1996 election campaign. In a political strategy that many came to view as the cause of the MPRP's downfall, the party offered no firm prescriptions for Mongolia's political problems or for its relations with other countries. Democratic Union coalition candidates, on the other hand, put forward a more specific policy agenda, vowing to make government more transparent, sell state-owned media organizations, establish pension plans, increase teacher salaries, and reform Mongolia's judicial system. Finally, the coalition placed a strong emphasis on friendship with the West—primarily with the United States, which Mongolia calls its "third neighbor." Mongolia held two related elections in 1997. In the presidential election on May 18, the results of the 1993 presidential election were reversed, and the presidency was won by Natsagiin Bagabandi, the MPRP candidate, leaving the government divided between the executive and the parliament. Bagabandi won with 60.8% of the vote against two other candidates: the incumbent of seven years, President Ochirbat, from the Democratic Union coalition, which retained its majority in the Great Hural from the 1996 elections; and Gombojav, from the Mongolian Unity Party (MUP). On August 20, 1997, Mongolia held an interim parliamentary election to replace Bagabandi, who had to give up his seat in the Great Hural in order to become president. Bagabandi's former parliamentary seat was won by MPRP member Nambaryn Enkhbayar. To some extent, political analysts at the time regarded Bagabandi's election as a symbolic gesture of public frustration over the drastic and painful economic reforms imposed by the new government after the 1996 elections in an attempt to cope with the collapse of Soviet subsidies after the fall of the Soviet Union. Under those reforms, unemployment, crime, and taxes rose, while other financial and economic policies were not entirely successful. In addition, some believed that the Democratic coalition majority elected in 1996 did not communicate its goals and policies effectively enough to the public to sustain its popularity in the 1997 presidential election cycle. Most believed that Bagabandi's election would not change the overall direction of democratic development and reform in Mongolia. For one thing, Mongolia's 1991 Constitution reserves only limited powers to the President—in principle, the power to veto—while giving most political power to the Great Hural, including the power to appoint government ministers. Nevertheless, the Democratic coalition's 50-seat majority in the Great Hural, though substantial, was still one vote short of the margin needed to override presidential vetoes. Mongolia's political situation became more tumultuous in 1998, with a series of political crises leading to much legislative maneuvering between the MPRP-led government and the ruling Democratic coalition. On April 17, 1998, Prime Minister Enkhsaikhan announced his resignation in the wake of public discontent over harsh reform measures he had adopted to strengthen Mongolia's economy. On April 23, 1998, Enkhsaikhan was replaced as Prime Minister by MNDP member Tsakhiagiyn Elbegdorj, the majority leader in parliament, who was elected with 60 votes out of the 76 members in the Great Hural. Elbegdorj, in turn, was forced to resign by a no-confidence vote in the Great Hural on July 24, 1998—making his government the shortest in Mongolia's brief democratic history—because of his controversial decision on May 27, 1998, to allow the state-owned Renovation Bank to merge into the privately held Golomt Bank. The parliamentary group of the MPRP charged that the decision on the bank merger violated the Mongolian constitution and posed a threat to national economic security. In the ensuing months, the ruling parliamentary coalition struggled with President Bagabandi over the naming of a new Prime Minister, with Bagabandi repeatedly rejecting the Great Hural's choice of Davaadorj Ganbold. In December 1998, the new MNDP leader, Janlavyn Narantsatsralt, became Prime Minister. But his government fell in scandal in July 1999. On July 30, 1999, the Great Hural endorsed as Prime Minister Rinchinnyamyn Amarjargal, another Democratic coalition candidate. Ultimately, in 2000, the strain of these political crises proved too much for the Democratic coalition. It collapsed, setting the stage for a dramatic comeback by the MPRP in parliamentary elections in July, when MPRP candidates won 72 out of the 76 seats in the Great Hural. That month, the MPRP leader, Nambaryn Enkhbayar, became Mongolia's 5 th Prime Minister in two years.