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Foreign Assistance, Investment, and Joint Ventures

Foreign assistance and investment in Mongolia were in the form of credits, gratis assistance, turnkey projects, and joint ventures. Most foreign investment and assistance came from the Soviet Union, but precise information was lacking or was hard to quantify. Foreign observers have estimated Soviet assistance (in constant 1967 United States dollars) to Mongolia from 1955 to 1983 to total US$7 billion in aid agreements, of which US$5.5 billion was disbursed, US$1.9 billion was repaid, nearly US$400 million represented interest payments, and US$1.5 billion of loans still were outstanding. Estimates included a credit agreement of US$225 million for the period 1947-56, and irregular, minor assistance agreements of US$61 million in 1957, US$25 million in 1964, US$17 million in 1969, and US$19 million in 1974.
Major assistance agreements coincided with Mongolia's five-year plans: US$500 million in 1961 for the Third Plan, US$550 million in 1965 for the Fourth Plan, US$633 million in 1970 for the Fifth Plan, US$1.6 billion in 1976 for the Sixth Five-Year Plan (1976-80), and US$3.4 billion in 1980 for the Seventh Plan. Another Western source estimated that 11 percent of the Mongolian GNP during the 1976-79 period came from the Soviet Union. Assistance from capitalist countries was negligible; Japan granted Mongolia a 5-billion yen loan to finance the building of a cashmere plant which began operating in 1981.

A Soviet source detailing Soviet credit and gratis assistance to Mongolia noted that 17 percent of the Mongolian budget from 1924 to 1940 came from Soviet loans, which accounted for 90 percent of Mongolia's foreign credit. Soviet credits to Mongolia totaled 450 million rubles from 1961 to 1965, 470 million rubles from 1966 to 1970, 550 million rubles from 1971 to 1975, and about 1.1 billion rubles from 1976 to 1980. Most of these loans were granted at a concessionary rate of 2 percent annually; deferments of repayments, during which time interest was not charged, were obtainable if necessary. Soviet credits represented a large proportion of Mongolian capital investments: 32.2 percent from 1958 to 1960, 47 percent from 1961 to 1965, and 59 percent from 1976 to 1979. Credit assistance went to reimburse Soviet and Mongolian organizations involved in construction, installation, and technical assistance in agriculture, industry, construction, transportation, communications, housing, and cultural projects as well as to finance Mongolia's trade with the Soviet Union. Soviet gratis assistance to Mongolia was listed as 77.5 million rubles from 1921 to 1940, as 50 million rubles from 1966 to 1975, and as 40 million rubles from 1976 to 1980.

Turnkey projects, financed by loans from the Soviet Union and other Comecon nations, were a major form of assistance in the 1980s. The Soviet Union was the leader in providing Mongolia with turnkey projects; it constructed or modernized 90 economic facilities from 1961 to 1965, 52 from 1966 to 1970, 150 from 1971 to 1975, and 240 from 1976 to 1980. From 1971 to 1975, turnkey projects represented 44.9 percent of Soviet credits to Mongolia. By 1981 facilities built by the Soviet Union contributed more than half of Mongolia's total industrial output: 90 percent of thermal and electric power generation; 80 percent of coal production; 70 percent of confectionery and bakery products; and 100 percent of woolen cloth, felt, formula food, copper and molybdenum concentrate, and fluorite output.

Examples of turnkey projects constructed after the 1960s included a woodworking combine, a glue factory, and two distilleries built by Poland; a clothing mill and flour mill built by Hungary; a tannery and a cement works built by Czechoslovakia; a furniture and a cardboard combine built by Romania; a meat combine built by the German Democratic Republic (East Germany); a sheepskin coat factory and the Sharin Gol state farm's fruit and vegetable processing factories built by Bulgaria; and a house-building combine and spinning mill built by the Soviet Union. Turnkey projects often were part of larger joint Soviet-Mongolian development projects, such as those at Baga Nuur, Choybalsan, Darhan, and Erdenet,

Major Joint Ventures, 1987

Joint VenturePartnerSectorDate Comments
Erdenet Mining and Concentrating CombineSoviet UnionMining1973Exploitation of copper and moybdenum.
Monogolbank-do-Banking1924Turned over to Mongolian control in 1954 and renamed State Bank of the Mongolian People's Republic.
MongolbolgarmetallBulgariaMiningLate 1970s 
MongolchekhoslovakmetallCzechoslovakia-do-1979Exploitation of fluorite and tin.
MongolneftSoviet UnionOil1949Turned over to Mongolian control in 1957.
Mongsovbuner-do-Wholesale trade1932Turned over to Mongolian control in 1934.
Mongolsovtsvetmet-do-Mining1970sExploitation of nonferrous metals.
Mongoltrans-do-Transportation1929Turned over to Mongolian control in 1936.
Sovmongmetall-do-Mining1949Turned over to Mongolian control in 1957.
Sovmongolpromstroy-do-ConstructionAfter World War II 
Stormong-do-Foreign trade1927Turned over to Mongolian control at unknown date.
Ulaanbaatar Railroad-do-Transportation1949Established with 53 percent Soviet share; equal shares agreed upon in 1968.
Source: Based on information from Alan J.K. Sanders, Mongolia: Politics, Economics, and Society. Boulder, Colorado, 1987, 85-87.

Since 1924 joint-stock companies and joint ventures between Mongolia and the Soviet Union as well as other socialist countries have been a major means of securing foreign investment, of training Mongolian personnel, and of developing the Mongolian economy. Although many joint-stock companies eventually were handed over to sole Mongolian ownership by the Soviets, joint ventures in operation in the late 1980s also enabled the Soviet Union to penetrate, and to exercise control over, important sectors of the Mongolian economy, especially in the early days of the republic. Mongolbank, Mongoltrans (Mongolian Transportation), Stormong, the Ulaanbaatar Railroad, and the Erdenet Mining and Concetrating Combine are examples of joint ventures of strategic economic value to the Soviet Union. All partners in a joint venture typically have equal or nearly equal shares; part of the profits are allocated to development, reserve, and special funds; the balance is shared equally by the partners. Directors of joint enterprises with the Soviet Union typically are Soviets, and their first deputy directors are Mongolians. Beginning in the 1970s, many East European countries formed joint ventures with Mongolia.

Mongolia provided a very modest amount of foreign aid. During World War II, Mongolia gave the Soviet Union 35,000 horses, 2.5 million tugriks, and 300 kilograms in gold, and it financed an armored column of 53 tanks and the Mongolian Herdsman aircraft squadron. According to a Soviet source, Ulaanbaatar also supplied the Democratic People's Republic of Korea (North Korea) and Vietnam Democratic Republic of (North Vietnam) with financial assistance during their "wars of liberation." In the 1980s, recipients of Mongolian aid included Afghanistan, which received two fully equipped ger; Cambodia, which received 77 tons of unspecified aid; Laos, which received a sheep-breeding station and a 200-bed hospital; and Vietnam, which received canned foodstuffs, school equipment, and 100 million meters of cloth. In 1988 the Soviet Union accepted 1.9 million tugriks and 300,000 tons of canned meat from Mongolia for the Armenian earthquake relief fund.

Last Update: 2010-12-07