I. CURRENT DEVELOPMENT TRENDS AND ISSUES
1. This country strategy and program update (CSPU) for 2007–2009 covers developmentssince the country strategy and program (CSP) for 2006–2008 was endorsed in October 2005.While the overall program priorities in the CSP remain relevant, changes have been introducedto account for the Government’s recently refined strategic approach, the initial assessment ofADB’s managing for development results (MfDR) agenda, heightened concerns about
governance, the priorities identified in ADB’s second medium-term strategy (MTS II),1 and theneed to harmonize ADB’s strategy and program with the priorities of other sources of funds. TheCSPU covers private sector operations. A consultation mission in April 2006 confirmed that theGovernment expected ADB to maintain the program directions of the CSP. A countryprogramming mission from 12 to 20 June 2006 discussed details of the program with theGovernment. Table A1.1 in Appendix 1 indicates progress toward the Millennium DevelopmentGoals (MDGs) and targets.
A. Recent Political and Social Developments
2. The coalition of the Mongolian People’s Revolutionary Party (MPRP) and the MotherlandDemocracy Coalition (MDC) collapsed in January 2006 following the resignation of MPRPcabinet members. A new cabinet consisting of members of the MPRP and minor parties wasformed. Civil unrest in April 2006 over the negotiation of a stability agreement with a majorforeign mining company dissipated when protestors and the Government agreed to civil societyparticipation in negotiations. Parliament passed laws on the tax regime, windfall taxes on copperand gold revenues, anticorruption measures, and mineral extraction.
3. Three issues underlie ongoing political debates in Mongolia. The first is the popularperception, sharpened by rising international commodity prices, that Mongolia may not bereceiving its fair share of mining sector profits. The outcome has been the passage of windfallprofit taxes, which have implications for foreign direct investment.2 The second is the recognitionthat many Mongolians have failed to benefit noticeably from the transition to a market economy.
As a result, promises made during the last election resulted in a program to provide cashpayments to poor families with children. The program was later extended to all families withchildren. The third issue, which largely is discussed within Government and Parliament, is theproposition that Mongolia could grow more rapidly by increasing its borrowing. Despite newloans and grants from external funding agencies, some in Government believe that the time hascome to go beyond the donor funding that has supported the transition over the last 15 yearsand seek non-concessional resources to develop infrastructure, industry, and the mining sector.