Mongolia reels from `shock therapy'

IN THE town called Moron, the locals live off their wits. Pitching their traditional "ger" tent on the nearby steppes of northern Mongolia, Dashumberel and his wife, Tsetsgee, are survivors of perhaps the most extreme economic shock therapy in the world. Both lost their state-salaried jobs when 70 years of Mongolian Communism collapsed in 1990 and their village co-operative was dissolved. So, like thousands of other Mongolians, this couple and their five children retreated to a nomadic way of life out on the grasslands, where winter temperatures drop to minus 35C.

"Compared to the socialist time, life is worse," said Tsetsgee, 42, a former shop assistant. "We don't have any jobs, and must depend on livestock."

With 130 animals, mostly sheep, goats and horses, the couple eke out a subsistence living, moving about five times a year. A sheep is occasionally bartered for flour and salt from travelling traders and, with luck, they can sell animal skins in Moron, 30 miles away. But despite their harsh experience of the market economy, both voted for the Democratic Coalition, winner of the 1996 election, a poll which saw a 91 per cent turnout. "We thought democracy was an important factor to develop Mongolia," said Dashumberel, aged 49, a former driver.

No Communist regime has experienced a more abrupt shift to a capitalist democracy than Mongolia. For seven decades, this vast land between Russia and China was a Soviet satellite state, closed to outsiders. In 1990, street protests in the capital Ulan Bator prompted a swift and bloodless transition to democracy, quickly followed by severe financial trauma as Moscow cut subsidies amounting to 30 per cent of Mongolia's gross domestic product (GDP).

Since then, the country's extreme climate and remoteness have been matched by the radical policies of its elected leaders. Mongolia, nearly 12 times the size of England, has 31 million head of livestock, 2.4 million people, and a most uncompromising free-market government. The animals are doing fine, but many of the people are wondering whether the undiluted theories of Milton Friedman are really the answer.

Before 1990, even the sheep were state-owned. Now, over a bowl of fermented mare's milk in his ger, Dashumberel explains how he recently sold his shares in a knitting factory quoted on the stock exchange in distant Ulan Bator. Like everyone, he was given vouchers in 1992 that could be swapped for shares under the government's scheme to privatise everything - not just the animals, but all Mongolia's state-owned industry, factories, small businesses, and shops.

The process, in practice, was riddled with corruption, but has produced a band of unlikely shareholders. The problem is that too many of these pilot capitalists do not have enough to eat. "We have just sold the shares, cheaply, for about 10,000 Tugriks (pounds 7.50)," said Dashumberel (who, like most Mongolians, uses only one name). And how have they used the money? "We bought food and flour."

A world away, sitting in his Ulan Bator office dressed in a sharp blue suit, is one of the architects of this economic adventure. Zoljargal, the 33-year-old senior economic adviser to the acting prime minister, Elbegdorj, is a committed disciple of the free market, and while still in his twenties was the head of the new stock exchange.

"Of course there is Milton Friedman. That's who gives the inspiration about the whole thing, and what should be the goal behind those changes," he said. "I think it's very important if you want to liberalise, that you just throw away all the regulations."

Thus Mongolia has undergone eight years of economic "shock therapy", aided by a golden horde of Westerners - many American - keen to get involved, from right-wing economists to missionaries. The International Monetary Fund sets the strict monetary targets, and the World Bank, the Asia Foundation, USAID, the Soros Foundation, visiting Harvard economists, and the International Republican Institute all rejoice in a former communist country which welcomes foreign experts. The IRI, in the run-up to the 1996 election, even helped the Democratic Coalition draw up a "Contract with Mongolia", modelled on Newt Gingrich's US blueprint.

So how does it feel to be on the receiving end of this experiment? Out on the grasslands around Moron, about 500 miles north-west of Ulan Bator, conditions are harsh. Dashumberel's family is a typical example of how old securities have been demolished. After the July 1990 election, won by the former Communists, the Mongolian People's Revolutionary Party scrapped the co-operatives. Out went free health, education and welfare services to rural dwellers.

Nearly 15 per cent of children dropped out of school, and infant and maternal mortality rates rose. Dashumberel reflects: "In the old days, even if you just had a cold, you could go to the doctor for free. Now we just try to stay healthy."

In provincial centres like Moron (which means big river), the situation was dire. Without Soviet support, the country's GDP contracted for three years in a row, inflation peaked at 320 per cent in 1992, and food rationing was introduced. Between 1992 and 1996, under a re-elected MPRP government, Mongolia's industrial production plummeted: flour, butter and cereal output halved, woollen fabric fell by 94 per cent, shoes by 96 per cent, and even sausages by 80 per cent. According to the World Bank, one-third of Mongolians were living below the poverty line.

A surprise general election triumph in mid-1996 by the Democratic Coalition led to another bout of "shock therapy". Energy and flour prices soared, import duties were virtually abolished, housing privatised, and a new target set to sell 60 per cent of state assets by 2000.

Elbegdorj, who was Democratic Coalition prime minister until he lost a vote of confidence a week ago, said: "Popularity is not our aim. There is no reform without hardships. If there are no hardships, and no resistance, it is not reform."

Moron, a bleak town of 25,000, is still waiting for the upturn. Dirt roads are lined by slatted fences sheltering wooden dwellings and "gers". Few vehicles pass down the streets, as children carry buckets to collect water from standpipes. The power station is in trouble because people cannot afford to pay their bills, so homes only have electricity six hours a day.

Outside a bank, a long queue of Moron residents waits in the rain in the hope of collecting July's child allowance. They queued in June, but there was no money. Not one person in line has a job anymore.

Tulgaa, a 27-year-old man, lost his job in the flour factory two years ago. "People are quite angry. Most people who are capable of work in Moron are unemployed, maybe 90 per cent." Passing by, Ganaa, a 35-year-old Moron teacher, said: "The problem with the government is the lack of social policy."

Nationally, at least one-fifth of the labour force is out of work. Enkhsaikhan, the prime minister from 1996-98, was involved in crafting both "shock therapies" and said: "I think Mongolia simply did not have any other choice following the stopping of Russian aid." Looking at the big picture, there are some positive signs. In June, inflation fell below 10 per cent while 1997 economic growth reached 3.3 per cent. It is Mongolia's misfortune that the Asian economic crisis has this year hit the prices of all Mongolia's main exports - copper, gold and cashmere - knocking the government's budget way off course again.

In Ulan Bator, home to one-third of the population, some ordinary people are at last finding a foothold in the new economic order. Imported cars, more goods in the shops, and the many new nightclubs and bars confirm there is new money - often from trading goods with China and Russia. Private businesses are being established.