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. Last Updated: 07/27/2016

The Mongolian Lesson

If you are fearful for Yegor Gaidar's chances of getting the Russian economy back on the road, spare a thought for the people of Mongolia. A remote and land-locked former satellite state of the Soviet Union, Mongolia is on the brink of economic collapse. It is entirely at the mercy of foreign aid for its supplies of oil, medicine, and to a large extent, food.


The center of the capital, Ulan Bator, looks like some of the uglier parts of Moscow. But there is a feeling here of extreme remoteness. Snow-covered mountains can be seen above the chimneys, while 20 kilometers down the road begins vast, rolling countryside.


Hunger strikes and demonstrations brought democracy to Mongolia in 1990. This summer the Mongolian People's Revolutionary Party, formally the Communists, won the elections overwhelmingly. But the party has shaken off its past ideology and is pressing ahead with radical economic reform.


Two-thirds of Mongolia's two million population still live in traditional nomadic tents known as yurts. They are spread out over a country the size of Western Europe. Even in the suburbs of Ulan Bator you can see yurts pitched in wooden compounds with electric light cables running through the tents.


But Mongolia is a small country compared to its two vast neighbors, China and Russia. Some Mongols see the national flag - a blue strip flanked by two red stripes - as symbolizing Mongolia's sandwich position between the two giants. China ruled Mongolia indirectly until the revolution of 1921. After that, the Mongolian government was little more than a puppet of Moscow - Ulan Bator once boasted the world's largest statue of Stalin. These days Mongols are more fearful of domination by China than by Russia. China tried to prevent the recent visit of the Dalai Lama to Mongolia. Half the population turned out to see the Tibetan spiritual leader.


Russia now claims that Mongolia owes 18 billion convertible rubles for 60 years of Soviet "investment" in Mongolia. There are long discussions about what rate to use to convert the debt into dollars. But as the Mongolian government is bankrupt, the discussion is largely academic. The end of cheap Russian oil threatens to bring the country to a standstill.


Out in the vast countryside, communications are mostly conducted on horseback. Fuel shortages have crippled the internal air service. Roads are little more than tracks.


Mongols are confirmed meat eaters and the economy is largely based on herding. Cashmere, made from the wool of Angora goats, earns the country around $13 million in exports annually. Over the past two years 60 percent of the 25 million head of livestock has been privatized. But lack of purchasing power in the cities means that farmers are reluctant to bring meat to market. Special shops are meant to provide Mongols with a basic subsistence diet on top of which they buy food on the free market. But the price of even rationed bread was liberalized recently. It rose from three tugriks to thirteen in one day.


The tugrik was fixed at three to the dollar for 20 years. Recently the official tourist rate has plummeted to 250. The former chairman of the central bank is in jail. Last year he lost over $80 million playing the currency markets. Still, the government dreams of converting the tugrik.


The government is still keen to build virility symbols of the capitalist age. The half-built Ghengis Khan Hotel promises to provide visiting businessmen with five-star accommodations and a 2000 seat conference hall. Unfortunately, the project has run out of money and the Yugoslavian builders sit around playing cards.


The Mongolian stock exchange is situated in a converted children's cinema in the central square of Ulan Bator. The gleaming white interior is illuminated by the flickering of computer screens. Strangely enough a pool table sits in the middle of the dealing hall. Since February this year, 121 companies have been floated on the exchange using a voucher scheme. Mr. Naidansurengiin Zolzhargal, the 27-year-old chairman of the Stock Exchanges proclaims: "This is a mass, giveaway privatization for its own sake. The goal is not raising capital, but changing the ownership structure of the economy".


The Austrian company which refitted the Exchange last year at a cost of $1. 5 million is still awaiting payment from bankrupt Mongolian Government.


Hugh Fraser is a freelance journalist based in Moscow.