This report is the first assessment of Mongolia’s human development situation. All national development efforts need a vision- a focal point to make co-ordinated and sustained improvements-supported with political will and people’s participation. This report offers the paradigm of human development as an appropriate vision for Mongolia’s efforts to improve the lot of all its people. This is because human development puts people at centre stage in development efforts, making them not only the beneficiaries of the development process but also the agents of change. Human development refers to a process of expanding people’s choices. This includes both forming human capabilities to express choice, and enlarging the opportunities to apply those capabilities: through better health, more education, better material living standard, security of livelihoods, political freedoms, environmental care, and equality of opportunities across gender and social status. This report acts as a benchmark for these main human development concerns.

Mongolia’s transition involves reconciling the past as well as shaping the future. The experience in Mongolia after 1921 shows that-given the political will- a country can promote elements of human development even without great wealth. In just under 70 years, Mongolia expanded health and education coverage to all its population, even in the furthest outreaches of its vast and sparsely populated territory. By 1990 Mongolia had male and female adult literacy rates of around 96 per cent, had 62 per cent of its population completing at least primary schooling; had brought infant mortality down from extremely high levels to 64 per 1.000 live births; achieved 87 per cent immunization coverage of one-year olds; and increased life expectancy at birth to 62.5 years. And yet even by 1989, Mongolia’s GDP/capita was only US$2.000(in terms of purchasing power), which ranked 96^th in a sample of 160 countries [UNDP global HDR 1992].

Embracing Liberalism
In the 1990s, a profound expansion in political and social freedom has opened up the way to use those capabilities. Entrepreneurial and creative talents have been released; individuals are better able to express choice both as producers and consumers; civil society is better able to assert itself, choosing both who governs and the details of the government process; the successful enjoy remarkable gains in living standards and material consumption; and there has been a marked cultural and social rejuvenation, as Mongolians of all walks of life recognize a new sense of personal opportunity and liberty. But along-side these changes, the collapse of the centrally planned, socialist system revealed deep weaknesses. Many of the human skills and much of the capital stock developed under the socialist system were ill- suited to a competitive market economy. On top of this, a series of events precipitated a macroeconomic crisis: the withdrawal of Soviet support, the collapse of the CMEA, and the government’s concerted effort to privatize state assets and liberalize prices, tariffs, and foreign trade.

In recent years, many of the main macroeconomic indicators have begun to stabilize. Although a number of underlying problems still remain, Mongolia is now well on the way to laying the basis for a strong competitive market economy led by private sector growth. But transition has also brought human development costs. Despite recent increases in GDP per capita, poverty has been increasing in Mongolia and is at its highest level in any year since 1991 (with the exception of 1994, when it surged to 20.2 per cent of the population). Wage rates across the board have been severely eroded and have only recently begun to pick up again. Meanwhile, unemployment has emerged as a major social issue, with a registered unemployment rate of 6.5 per cent in 1996- unregistered unemployment is thought to be at least as large as registered. The unemployment situation is most serious in the aimag centres, which show few options for economic development and are among the poorest areas of the country. Progressive cutbacks in public expenditure have been accompanied by a decline in the quality of health care and education. The number of school dropouts and non-enrolments has risen to alarming rates. The social fabric of society has also frayed, with a growing number of street children and increases in criminal behavior. Other problems of human concern include the deteriorating quality of the environment, both in urban centres and in rural areas where localized land degradation threatens the prosperity of herders.

The government is aware of these problems and has struggled to deal with them in the context of severe budget restrictions. The continuing instability of the economy has forced the government to give priority to macroeconomic stabilization while intensifying the reforms required achieving a free and efficient market economy. In pursuing its objectives, difficult choices and trade-off have had to be made, particularly regarding the short-term human impact of certain macroeconomic policies on the poor.

No Easy Solutions
The Report finds that there are no easy solutions to the task of balancing economic stability and growth with human development objectives. Nevertheless, it also highlights the potential pitfalls of neglecting human development concerns. Although the government’s policies may serve to generate more employment and income in the long run, they risk undoing the considerable social achievements of the past 70 years, exposing a generation of Mongolians to a childhood of deprivation. Deterioration of human capital through the running down of health and education services can ultimately constrain growth and defeat the government’s original purpose. Widespread poverty can hinder the growth of local markets and depress savings, thereby also constraining growth in the longer term. Moreover, prolonged poverty can lead to social and political unrest that can undermine investors’ confidence in the economy.

The government has recently been focusing on the issue of raising revenue and has revised its tax laws to broaden the tax base and shift the tax burden from investment to consumption. While likely to increase tax revenues in the future, it could result in a net fall in revenues in the short-term, causing additional hardships for households. The report urges the government to examine innovative ways for revenue generation, to continue its ongoing efforts to strengthen its tax collection capabilities and to improve internal financial management systems.

Decentralization of economic and political power to local governments is a further important strategy designed to improve the efficiency of government and make it more responsive to local needs. While lauding the achievements made so far in this direction, the report finds there is much to be done to strengthen fiscal relations between different levels of government and to devolve real decision making to lower authorities.

Recommendations
The report proposes that the government pay closer attention to bringing human development issues centre stage in its national development strategy. While supporting the government’s overall policy of economic reform, the report puts forward the two mutually reinforcing strategies of ‘ human-centered growth’ and ‘growth centered anti-poverty’; to guide Mongolia’s continued transition to a market economy. It urges both the foreign aid community and the government to incorporate human development targets in specific development programmes. The report proposes that human- centered growth can be pursued by giving greater attention to the effects policies have on the poor, while focusing on removing anti-poor biases from improperly functioning or incomplete markets. It also urges the government to continue giving high priority to social expenditure, to strengthen the provision of cost-effective social services and to improve the impact and function of social safety nets

The report reaffirms the importance of participation, free choice and empowerment as a means by which Mongolians can pursue and realize their aspirations. It acknowledges the great progress made in this direction by Mongolia in recent years. Further strengthening of the government’s decentralization process, more support to the growth of civil organizations such as NGOs, and improved access to information, are recommended as ways of further reinforcing this process