Identificación y justificación de actores

Mongolia’s PRS framework can be dated to 2001 when the government adopted an Interim Poverty Reduction Strategy Paper (I-PRS). This was followed by the development of the Final PRS – the Economic Growth Support and Poverty Reduction Strategy (EGSPRS) in 2003 (GOM, 2001 and 2003). This section reviews the history of Mongolia’s PRS framework and locates its development within the broader transition strategy.

Table 4.1, which lists the major policy milestones since the initial transition divided into the pre-and post-PRS periods, makes clear that the impact of adoption is not easy to discern.

Policy choices have held, throughout, to an orthodox template of reforms. However, it is possible to identify some change of emphasis, notably in the years spanning the development of the PRS. Indeed, the chronology shows some slowing of the reform programme from 2000 with the re-imposition of a basic tariff rate and the development of the F-PRS during 2002 and 2003. However, from 2004 the trajectory of reform has been mixed - including both accelerated privatization (of land and public services), alongside a greater commitment to social policy objectives, given by the Child Money Programme (CMP) launched in 2005, and the statutory commitment to the MDGs (made in the same year). In recent years however, the PRS framework has fallen into abeyance. It will be argued below, that this pattern of change and the potency of the PRS within policymaking are a product of the importance of the IFIs, and inter alia, their financial support; and the dynamics of Mongolia’s post-communist political economy.

56 The emergence of new, and more divided, sectional interests during the minerals boom years was sourced from field-based interviews. NGO respondents were especially critical. Official and donor sources also highlighted grand corruption as a threat to the development process.

Table 4.1: Transition policy milestones pre and post-PRS adoption

1 2

Year Milestones (a) Pre-PRS adoption

1990 Major political change, followed by initial steps towards transition stance Wild privatization effectively sanctioned through state-decontrol of production 1991 Complete and rapid price liberalization

Privatization by assignment (voucher-based) of medium sized SOEs 1992 Transfer of herds and privatization of agricultural cooperatives - the Negdels

Banking re-structuring, including major privatization of Banks

1993 First IMF ESAF arrangement agreed. Tugrik floated and becomes fully convertible

Some capital account deregulation takes place. External tariff reductions made (to an average of 10%)

1994 National Poverty Action Program (NPAP) launched

1996 Full price deregulation, Abolition of all tariffs (an effective 0% rate)

1997 Second IMF ESAF arrangement agreed, Mongolia’s accession to the World Trade Organization (WTO)

Further deregulation of capital transactions and tax holidays offered to foreign investors Transfer (by assignment) of residential property, directly and at no cost to occupiers 2000 Tariffs re-imposed at 5%, Strategic SOE privatization announced

(b) Post PRS adoption (I-PRS, 2001) 2003 Final PRS adopted

2004 Privatization of the Economic and Social sectors (the so-called New Zealand Model) and Land privatization initiated

2005 Child support scheme for poorest families launched (the CMP), MDG targets given legal force (Ikh Hural Resolution number 25)

2006 Windfall tax imposed on mineral companies to support a National Development Fund Reductions in income and value-added taxes

2007 MDG-based National Development Strategy launched, CMP is universalized

2008 Public sector wages increased by 30 per cent and across the board pensions increases Election pledge of mineral wealth dividend. Coalition formed following civil unrest 2009 IMF Standby arrangement agreed

Source: Marshall (2004), field studies and press reports

Mongolia was encouraged to prepare an I-PRS to maintain access to the IMF’s PRGF lending mechanism, initially granted under the Enhanced Structural Adjustment Facility (ESAF). The I-PRS offers a standard poverty profile and puts forward an orthodox reform agenda focusing on economic stabilization and economic management. Growth alone is cited as the route to poverty reduction and no mention is made of the need to manage distributional outcomes.

Moreover, the growth strategy specified is a narrow one and can be summarized under three headings: creation of an enabling environment through further decontrol of the economy and institutional reforms; public provisioning targeted at human capital along with some infrastructural investment; and structural reforms (chiefly privatization) to secure higher levels of efficiency. Disappointingly, although the supporting discussion within the I-PRS highlights a series of structural failures including a maladapted industrial base and weak capital markets, alongside strong evidence that poverty is rooted in economic inactivity, the document conspicuously commits the authorities to avoiding activist growth policies. On state directed investment the text asserts “the government will refrain from… measures or moral suasion to subsidize and/or direct credit to favoured industrial and other activities”

(GOM, 2001, paragraph 45); and on trade policy that “Mongolia’s liberal trade regime has served the country well and will remain key to promoting… investment” (GOM, 2001 paragraph 48).

The policy mix very clearly drew on the content of the preceding Policy Framework Papers (PFPs) prepared under the two IMF ESAF arrangements concluded in 1993 and 1997⁵⁷. While it is difficult to fully gauge the level of local ownership, national participants have noted that the I-PRS relied very heavily on external inputs, and chiefly from the local IFI missions⁵⁸. The structure and the tone of the document are also rather derivative. It is clear, in addition, that there was some divergence between ambition and implementation capacity.

Discussion of operational management and the oversight of the strategy are vague. Equally inadequate is the monitoring and evolution framework.

57 PFPs were joint IFI and national government authored strategic documents, and somewhat anticipated the content of the macroeconomic chapter of PRSs. These were used in concert with ESAF arrangements in the 1990s and subsequently abandoned.

58 Taken from an interview with Ms. O Enkh-Ariunna (former Deputy Director of Economic Policy Ministry of Finance & Economy); and discussions with Ministry officials (MOFE and MOSWL).

In spite of these points, the IMF and World Bank Joint Staff Assessment (JSA) of the I-PRS finds the document meets the requirements for the continuation of lending arrangements, and welcomes the government’s adherence to an orthodox policy stance. Particular weight is placed on the value of Mongolia’s liberal trade regime. Yet their endorsement is not complete. The commentary raises concerns about the substance of the commitments made, and directly questions the capacity of the government to deliver them. Perplexingly, although the JSA commends the level of national ownership, it also acknowledges that the strategy is too reliant on Bank and Fund staff inputs (IMF and IDA, 2001a).

The EGSPRS (the F-PRS), in contrast, has the flavour of a nationally crafted document and the diagnosis of poverty and its dynamics are more substantive (GOM, 2003). In addition, key policy issues, such as Mongolia’s dysfunctional welfare system, receive a genuine hearing. However, the F-PRS also suffers from a number of limitations. Most significantly, it is a poorly focused volume of some 300 pages, in which the strategic direction is not clearly articulated, and it does not represent a functional planning mechanism. Although compilation of the F-PRS was led by the Ministry of Finance and Economy (MOFE), its development took place within sectoral working groups and was dominated by sector specific priorities. Key operational questions including management and coordination responsibilities, the interface with the executive and governance structures, and the machinery required to support monitoring and evaluation are neglected. Moreover, although the document pays attention to wider issues, including structural questions and the importance of managing inequality, the economic policy stance remains avowedly orthodox. The priorities are macroeconomic not structural, and poverty reduction is, as before, largely viewed as a by-product of an unfettered growth process rooted in state-disengagement.

However, it is important not to overlook some genuinely novel developments. First, several new policy themes emerge: the policy salience of poverty reduction as opposed to growth alone; the recognition, albeit partial, of distributional questions; the targeting of social sector priorities; and some emphasis on new infrastructure (though this section largely outlines projects already taking place outside the PRS). Second, it is possible to identify at the periphery, more activist measures to secure more balanced economic outcomes. These include competitive management of the exchange rate, a nascent re-distributional regional policy and

selective support for processing industries. However, these latter proposals are muted and very tentative.

The second IFI JSA commends the F-PRS and accepts it as a basis for ongoing lending operations (IMF and IDA, 2003). Yet the staffs explicitly criticize the document for including what they describe as contradictory and non-market based policy choices. Indeed, they go as far as describing the very limited regional and trade policies as “outdated” and “misplaced interventionism” (IMF and IDA, 2003, page 8 and page 12). Although the JSA also raises weak implementation capacity (specifically monitoring and evaluation) and the quality of the poverty analysis employed, the hostility towards the few policies which lie outside the orthodox template is striking and wholly disproportionate.

The ebb and flow of government-IFI relations serve as a back-drop to the policy importance of the PRS framework in Mongolia. Participants within the PRS drafting process recall that the IFI representatives were distinctly suspicious of any new domestically-sourced policy proposals, especially those which might be perceived as attempts to include activist measures.

For example, prior to adoption, proposals to track and target deposit-lending rate spreads, and to include non-economic conditions (such as employment requirements) within asset divestitures were dropped following IMF objections⁵⁹. In addition, accounts of the pre-development period also highlight the IFIs’ power to shape the PRS agenda, and hence, the wider set of policies considered. The joint IMF and World Bank round of briefing and training events following the conclusion of the I-PRS in 2002, and the supportive materials (not least the PRS Source Book), appear to have constrained the policy approach. These influences, which Chapter Two describes as policy tutelage, were especially potent in a country with low state capacity and a fairly shallow civil society. Indeed, the greatest opposition to what was effectively an entrenched policy stance, before the drafting EGSPRS got underway, came from other international actors – chiefly the UN agencies. The IFIs generally reacted negatively to these interventions, the best example being the IMF’s response

59 Sourced from personal record during assignment with UNDP (located within MOFE) and personal correspondence (and interviews) with former UNDP and Ministry colleagues (November 2008).

to the UNDP-sponsored economic policy dialogue and draft economic strategy – the so-called Griffin Report in 2001 (UNDP, 2001)⁶⁰.

These accounts of the Mongolian experience, its inherently weak state capacity and the primacy of the IFIs, fit well with heterodox critiques, and some of the case-based empirical analyses of the PRS process, articulated in Chapter Two (see section 2.2). However, it is possible to overplay the dominance of the IFIs, and other evidence suggests that the PRS was dysfunctional for other reasons. Indeed, post-adoption practice underlined that the national authorities were themselves guilty of policy ventriloquism to obtain concessional finance, as described in Van De Walle’s (2005).

The last formal PRS document to be produced by the Mongolian authorities was the EGSPRS Progress Report in 2005 (IMF and IDA, 2005). Drafted as part progress update, part rolled-forward strategy, this document text holds to the original policy approach, reporting outcomes and making only minor modifications. As a piece of analysis it is underwhelming, it is poorly put together and the analytical content is inadequate. Crucially, the report fails to examine the implications of the burgeoning mining sector for poverty reduction and Mongolia’s vulnerability to external shocks, and how these developments might be better shaped to affect the lives of the poor. The report does, however, recognize the prominence of MDGs in policy targeting, and within monitoring and evaluation. Underpinning this was the very active UN-sponsored campaign which culminated in Ikh Hural (parliamentary resolution) 25, which gave legal force to the Mongolian version of the goals.

Although, in a formal sense, the PRS’s strategic planning objectives were incorporated within the National Development Strategy (NDS) published in 2006, the de facto position is that the framework has fallen into abeyance and the associated analytical and monitoring capacity has been lost. The Poverty Research Group (PRG) which acted as the coordinating agent within MOFE has been disbanded and the former reporting arrangements dismantled. Currently, no governmental agency actively targets poverty reduction in a strategic way. Some capacity within NSO has been retained, which has enabled the improvement of the national poverty survey (the HIES) to meet international standards, and the government, in concert with the

60 Griffin reflects in a later publication, that the IMF, in particular, was highly dismissive of attempts to broaden the policy agenda in Mongolia (Griffin, 2003).

UN agencies, has continued to report on progress with respect to the Mongolian MDGs. It is worth noting that Mongolia is also no longer in receipt of the IMF’s PRGF lending facility, nor is it eligible for World Bank PRSCs.

In operational terms, the NDS has proved to be disappointing, and if anything, is still less credible than the EGSPRS. Completed outside official circles, and in spite of the concurrent establishment of a National Development Fund (NDF), the NDS remains moribund⁶¹. Discussions during field studies indicated the option of forming a National Development Agency (NDA) to assume responsibility for the NDS was receiving serious consideration.

However, these proposals had not yet come to fruition some four years after the inception of the NDS. The reasons for this failure are not merely a lack of political will. The NDS is a poorly structured document, is analytically weak, fails to provide a coherent action plan, and is generally unfit for purpose. Additionally it is important to recognize that the adoption of the MDGs as a monitoring framework, outside of the NDS structures, also served to weaken the focus of strategic planning efforts. The MDG reporting regime, championed and resourced by the UN agencies, has resulted in the imposition of a myriad of policy targets and has inculcated an ad hoc approach to policymaking within line ministries.

The overall trajectory of policymaking can be explained in terms of the varying influence of the IFIs against the changing imperatives of Mongolia’s political economy. Although, adoption of the I-PRS was a product of the administrative necessities of retaining PRGF finance, compilation of the EGSPRS did represent some new level of commitment.

Mongolia’s post-Dzud economy with vulnerability affecting a majority of the population ensured that poverty reduction was a central feature of electoral politics at the turn of the century. These concerns receded as the minerals-boom took hold, and the political imperative of poverty reduction was further diluted by an emergent urban middle class. In addition, although society has become more pluralistic, Mongolia’s political culture remains exceptionally shallow and ideology plays little part in national politics. Political judgments are increasingly privatized and the distinctly populist tone adopted by both major parties in the years after 2004, can be viewed in terms of the shifting economic fortunes of Mongolia’s

61 The NDF is supported by taxes on the extractive sector and a sizeable balance has been accumulated. Its funds are formally restricted to financing development projects, but the Government has effectively used it to co-finance mainstream expenditures.

median voter. In parallel, the buoyancy of public revenues between 2002 and 2008 weakened the ability of the IFIs to promote a more a pro-poor model of policymaking (albeit a narrowly defined one). Yet, the global recession which hit Mongolia in late 2008 and the re-emergence of Dzud conditions in the winter of 2009 do not appear to have reversed these trends.

The pattern of events can also be interpreted and offered as a critique of IFI conduct during the EGSPRS period – in over tutoring the authorities, in prescribing management arrangements and in precluding certain policy choices. In the language of the empirical literature on PRSs (see 2.2.3), they failed to embed the EGSPRS in the national institutional matrix (see Booth et al, 2003). In addition, an explanation of the failure of the PRS framework, based on the heavy handedness of the IFIs combined with weak capacity and political commitment, can be framed in terms of the model offered by Morrissey (2002).

A deeper contributory cause has been the very significant concentration of wealth that has occurred during this period which, in turn, has given rise to the unfavourable changes in Mongolia’s political economy⁶². Driven both by the privatization process and an ability to extract rents from the minerals sector, the governing elite have secured considerable business interests, and as a result, the capitalist and political classes are increasingly one and the same.

The elites have both a material and a political interest in opposing a more distinctly pro-poor, and hence re-distributionist, agenda. The waning official interest in poverty issues and the emergence of an ever more populist fiscal policy are both by-products of this process. Field level interviews with NGOs and development organizations also indicated considerable levels of mistrust of official motivations, on the basis that these are often aligned with private objectives. Additionally, the ownership of Mongolia’s mining wealth and the distribution of the associated income streams have become public controversies. The political disturbances of summer 2008 were themselves related to divisions over the State’s ownership of the mining sector and the associated tax revenues⁶³.

62 This finding of growing asset inequality is supported by field study interviews undertaken during November 2008 (see Appendix A). There are no authoritative data for wealth concentration in Mongolia, yet the income-based Gini coefficient worsened by 9.1 per cent, and the more distribution ally sensitive Thiel index by a striking 33.3 per cent, between 2002/ 2003 and 2007/ 2008.

63 See report in the International Herald Tribune, July 1^st, 2008

The fallout of the global recession, and the harsh winter of 2009/10, might have been expected to return poverty reduction to front line politics but, as noted, there seems to be little substantive change, save for the voices of a small group of campaigning NGOs⁶⁴. The IMF Standby arrangement agreed in spring 2009, however clearly anticipates some social dislocation. It asserts the need for measures to protect the vulnerable during what will be fairly painful years of adjustment (IMF, 2009a). While the substance of the official commitment to stabilization is unquestionable, it is far from clear that the emphasis on social protection will materialize. Published materials suggest that the government is to rely on the ADB and World Bank to finance poverty alleviation measures, including the provision of food aid. Field based interviews in late 2008, indicated that a more fundamental change in policy, or indeed, the rehabilitation of the PRS structures, remains unlikely.