Managing the implementation of ‘shock therapy’ in a landlocked state: Mongolia's transition from the centrally planned economy

Abstract

Abstract Mongolia is the second oldest communist regime after Russia, and its reforms have been under way since 1986. It is a land‐locked state and is characterized by its large physical size relative to a small population, an almost total historical dependence on the former‐USSR and a limited range of agricultural and mineral resources. Despite the profound effects that the collapse of the USSR and Comecon have caused, Mongolia has adopted a ‘shock therapy’ approach to reform, embarking simultaneously on a bold programme of both political and economic change. This article traces the genesis of the reform strategy, highlighting the interplay between external events and internal debate and sometimes outlining the major areas of the reform programme: the introduction of macroeconomic management to replace central planning, the improvement of incentives and an ambitious programme of privatization. The undertaking of such a programme in the Mongolia points to the importance of a social safety net and popular support for the reforms. The article then describes the complementary reforms of public administration that have been more recently introduced in the wake of a new constitution, with their emphasis on professionalization of government administration, transfer of responsibilities to provincial and local government and improved policies and institutions for national training. International technical assistance has and continues to play a significant role in supporting the above. A number of lessons are drawn with regard to strategy, particularly the need at programme level for an integrated or systems approach that can ensure linkages between different elements and at the level of training the need for imaginative approaches to design and delivery. The article draws conclusions on the prospects for success in each area of the reform programme. Critical for public administration restructuring and professionalization is the issue of institutional capacity for implementation. While the legal framework has now been laid down for decentralized government, for example, there is little prior experience in local government of many areas of functional management, finance and budgeting, investment planning and social services administration. On the economic front, the shock therapy stragegy has been adopted despite some earlier advice on the preconditions for successful privatization—with regard for example to market structure, the development of the financial sector and most crucially the continued role of the state in fostering entrepre‐neurship in a society devoid of any recent history of such.