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Economic Reforms

In the late 1980s, dissatisfaction with the economic stagnation of the last years of the former regime of Yumjaagiyn Tsedenbal and the influence of the Soviet perestroika led Mongolia to launch its own program of economic reforms. This program had five goals: acceleration of development; application of science and technology to production; reform of management and planning; greater independence of enterprises; and a balance of individual, collective, and societal interests. Acceleration of development in general was to result from the attainment of the other four goals. Scientific research was being redirected to better serve economic development, with electronics, automation, biotechnology, and the creation of materials becoming the priority areas of research and cooperation with Comecon countries.

Reform of management and planning began in 1986 with the first of several rounds of reorganization of governmental bodies dealing with the economy. These changes rationalized and streamlined state economic organizations; reduced the number of administrative positions by 3,000; and saved 20 million tugriks between 1986 and 1988. The role of the central planning bodies was to be reduced by limiting the duties of the State Planning and Economic Committee to overseeing general capital-investment policy. The indicators specified in the five-year and the annual national economic plans also were to be decreased. State committees and ministries, rather than the State Planning and Economic Committee, were to decide upon machinery and equipment purchases. Decentralization of economic management also was to extend to aymag and city administrations and enterprises. These bodies were given greater autonomy in construction and production, and they also were held financially responsible for profits and losses.

Efforts to devolve economic decision making to the enterprise level began in 1986, when more than 100 enterprises began experimenting with financial autonomy (before then, enterprises operating with a deficit had been subsidized by the state). Enterprises were accountable for their own losses, and they were responsible for fulfilling sales contracts and export orders. The draft law on state enterprises, presented to the People's Great Hural in December 1988, was to extend greater independence in economic matters to all state enterprises and to lead to an economy that combined planning and market mechanisms.

Under provisions of the draft law, state enterprises were to be authorized to make their own annual and five-year plans and to negotiate with state and local authorities to pay taxes based on long-term quotas. State enterprises also were to sell output exceeding state orders and unused assets; to establish their own, or to cooperate with existing, scientific organizations to solve scientific and technical problems; to be financially responsible for losses, and to pay back bank loans; to set prices independently; to establish wage rates based on enterprise profitability; to purchase materials and goods from individuals, collectives, state distribution organizations, and wholesale trade enterprises; to establish direct ties with foreign economic organizations; to manage their own foreign currency; and to conduct foreign trade.

The draft law stipulated that enterprises were to be divided into two categories. National enterprises were to be the responsibility of ministries, state committees, and departments; local enterprises were to be supervised by executive committees of aymag and city administrations or members of local hurals. State and local bodies were not to interfere in the day-to-day decision making of enterprises, but they were responsible for ensuring that enterprises obeyed the law and that they did not suppress the interests of society. Enterprises were allowed to form three kinds of associations: production associations, scientific production associations, and enterprise associations to coordinate economic affairs. Finally, the draft law said that the state was the owner of state enterprises and that the labor collective was the lawful manager of a state enterprise. The labor collective was to elect a labor collective council, which was to ensure that the enterprise director (who acted on behalf of the collective and the state) met the interests of the collective in managing the enterprise. It was unclear how the relationship between the enterprise director and the labor collective would work out in practice.

Balancing the interests of society, the collective, and the individual entailed providing scope for individual and collective initiative to increase production and efficiency. Enlarging the scope for individual initiative had three aspects: linking wages to enterprise profitability, permitting output exceeding state plans to be sold for profit, and providing employment opportunities outside the state and the cooperative sectors. In 1988 wage scales dependent on enterprise revenues were introduced to the light and food industries and to the domestic trade sector, resulting in a reduction in materials utilized by those sectors. Beginning in late 1986, state farms and negdels (agricultural stations) were eligible for state payments for output exceeding the annual average growth rate for the previous five-year plan. Individual agricultural cooperative members and workers were allowed increasing numbers of privately held livestock. The draft law also stipulated that enterprises could sell production exceeding plan targets for their own profit. In 1987 the government began encouraging the formation of voluntary labor associations, auxiliary farms, and sideline production attached to enterprises, schools, and so forth to increase production of foodstuffs and consumer goods, to engage in primary processing of agricultural goods, and to provide services. The authorities permitted the formation of individual and family-based cooperatives; by 1988 there were 480 such cooperatives. Contracting among state farms and both agricultural cooperatives and families was permitted and was increasing in the late 1980s (see Agriculture; and Industry).

Last Update: 2010-12-07