MONGOLIA: PROSPECTS FOR ECONOMIC DEVELOPMENT

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP85T00875R001700010015-3
• Release Decision: RIPPUB
• Original Classification: C
• Document Page Count: 18
• Document Creation Date: December 22, 2016
• Document Release Date: February 1, 2010
• Sequence Number: 15
• Publication Date: April 1, 1971
• Content Type: REPORT

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GROUP I
Excluded from uutomattc
dawng,ading and
dedaulgcatlan
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CONFIDENTIAL
CENTRAL INTELLIGENCE AGENCY
Directorate of Intelligence
April 1971
INTELLIGENCE MEMORANDUM
Mongolia:
Prospects For Economic Development
Introduction
1. Mongolia's Fourth Five-Year Plan (1966-70)
witnessed many failures and few successes. The
plan had two major setbacks -- acute losses of
livestock and serious shortages of grain and fodder.
Moreover, these agricultural setbacks marred the
performance of Mongolia's small industrial sector
which depends heavily on agricultural raw materials.
Substantial Soviet aid was necessary to insure the
stability of the economy; Mongolia -- because of its
strategic location between Communist China and the
USSR -- is the largest Soviet aid recipient on a per
capita basis in the entire world.
This memorandum examines the performance
of the Mongolian economy since 1965 and the measures
taken to improve its stability and to stimulate its
growth. It then evaluates the effects of Soviet
participation in the economy. Finally, it assesses
the prospects for development during the Fifth
Five-Year Plan (1971-75).
Discussion
Bac' ground
3. The Mongolian economy, historically based
on livestock, is only now beginning to enter the
modern industrial age. The harsh climate, the sparse
population -- 1.3 million people on 600,000 square
Note: This memorandum was prepared by the Office of
Economic Research and coordinated within CIA..
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miles of territory -- and the apparent lack of high-
grade mineral deposits limit the scale and direc-
tion of economic development. Investment require-
ments are substantial even to expand needed support
activities such as the raising of fodder crops for
the livestock herd. Apparently in recognition of
these constraints, the Soviet-sponsored development
program has centered on changing the nomadic live-
stock economy into an economy with a more sedentary
ranch-type agriculture and a small industrial base
for processing animal products and producing fuels
and building materials.
4. At the beginning of the Fourth Five-Year
Plan (1966-70), agriculture was still by far the.
primary sector of the economy (see Table 1).* There
were 20 times as many livestock as-people, and the
processing of animal raw materials accounted for
more, than 50% of gross industrial production. The
processed animal products not only satisfied the
demands of the domestic economy but also accounted
for more than 60% of export earnings. The "support-
type" industries accounted for about one-third of
gross industrial production. Of these, the electric
power and the coal industries were the more impor-
tant, followed by the small construction materials
industry.
5. Out of the more than 4 billion tugriks**
of planned investment in the economy in 1966-70,
agriculture and industry were to receive approx-
imately equal shares (see Table 2). For agriculture,
the plan stressed investment in the construction
of animal enclosures, feed plants, and irrigation
projects. Industrial investment plans emphasized
the processing of animal products in order to in-
crease export earnings by shipping processed prod-
ucts rather than live animals and the construction
of electric power, building materials, and other
"support-type" industries at the industrial produc-
tion centers, Darhan and Choybalsan.
* Official statistics released by the Mongolian
government are used in the text and tables of this
memorandum. They are believed to provide reasonably
good indicators of general orders of magnitude and
trends in the economy.
** At the commercial rate, 4 tugriks equal US $1.
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Table 1
Mongolia: Selected Economic Indicators
Agriculture
Livestock
Grain
Gross industrial
production
Electric power
Coal
Cement
Bricks
Lumber
Wool
Leather footwear
Processed meat
Million head
23.8
Thousand metric tons
354.
Billion tugriks
1.0
Million kilowatt hour:
242
Thousand metric tons
997_
Thousand metric tons
--
Million pieces
43.6
Thousand cubic meters
186
Thousand metric tons
7.9
Million pairs
1.4
Thousand metric tons
18.8
1.75-1.84 1.6
430-460 428
2,000-2,050 1,998
100-130 96
110-130 - 43.1
430-450 386
12-13 9.7
2.0 -2.1 1.6
55-62 34.9
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Mongolia: Capital Investment in the National Economy
1965
1966
1967
1968
1969
1970
Actual
Cumulative
Total, 1966-70
Planned
Cumulative
Total, 1966-70
Total capital investment
815
846
1,018
1,195
1,240
1,007
5,306
4,150-4,250
Of which:
Industry
300
199
277
484
381
198 a/
1,539 a/
1,080-1,100
Agriculture
110
114
233
233
334
464
1,378
1,130-1,250
Housing and social
services
255
356
229
160
131
N.A.
876 b/_
410-420
Transportation and
coaanunications
54
86
150
168
114
N.A.
-518 b/
490-500
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Plan. In the first part of the period, the agricul-
tural sector suffered from unfavorable weather, in-
efficiencies in management of collectives, and de-
lays in construction projects. These problems re-
duced the, expected flow of raw materials to industry.
Growth in gross industrial production, which was
to average 11.0%-12.5% annually, actually amounted
to 9%., Agricultural production in 1970 was even
less than it had been in 1965. Official indexes
of the gross value of production are as follows:
6. The eco:.omy faired-poorly during the Fourth
Outcome of the Plan
Gross Gross Gross
Industrial Agricultural Social
Production Production Production a~.
1965
100
100
100
1966
107
84
102
1967
118
89
111
1968
127
69
109
1969
141
88
118
1970
155
N.A.
123
of all .:foods produced in the economy. Services are
not included.
. Gross socia production is the sum of the values
7. The plan did have one major area of suc-
cess -- the capital investment goal was not only
achieved but overfulfilled. The USSR and its East
European allies were largely responsible for its
success, having provided about one-half of the
funds. As Table 2 shows, agricultural construction
was sluggish at the beginning of the plan but ac-
celerated quickly after the mid-plan setbacks.
Industrial investment, on the other hand, increased
rapidly during the initial years of the plan and
declined upon completion of the major industrial
projects. Also, the regime probably realized that
further expansion of industry was not needed until
the flow of agricultural and other materials could
be more firmly established.
8. Mongolia has endeavored to establish perma-
nent settlements as a replacement for the nomadic
tent villages and to provide communications facil-
ities linking the growing urban centers. The
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investment data in Table 2 indicate. that.*.this.... .
effort received an important share of the available
developmental resources. Housing construction was
greatest at the beginning of the plan and then be-
gan to decline as the larger projects at Darhan,,
Ulan Baator, and Choybalsan were being finished.
Construction of roads was continued,'the telephone
network was enlarged, and in 1968 a television
station at Ulan Baator was completed.
Agricultural Performance
9. Of the setbacks suffered by agriculture,
the livestock losses were the most severe. As
Table 3 shows, problems began to develop at the
beginning of the plan. The livestock herd had been.
decreasing since 1965, but the decline accelerated
during the winter of 1967-68 when temperatures
dropped to 50-60 degrees below zero. While extreme-
ly severe weather was the prime factor in these
heavy losses, the Mongolians have noted that mis-
management -- including lagging construction of
heated shelters and inadequate veterinary services
for controlling disease -- contributed to livestock
losses in every year of the plan. Although some
recovery was made, the herd size in 1970 was still
more than a million less than when the plan began.
10. Serious setbacks in grain and fodder pro-
duction also occurred because of droughts in 1966,
1968, and 1969. Grain production in 1969 was at
the lowest level. since Mongolia first began plant-
ing wheat in the late 1950s. Emergency deliveries
of animal feed during and after the 1967-68 winter
were required from the USSR, and Mongolia had to
import Soviet wheat in 1970. With the more,fav-
orable weather conditions in the last year of the
plan, grain production increased substantially, but
was still below the level of 1965.
11. The problems in agriculture led the regime
to step up investment in livestock shelters, fod-
der-processing plants, and irrigation projects. As
part of its collectivization program, Mongolia had
undertaken the task of creating a ranch-type .live -
stock base. Enclosures were set up to prevent the
herds from wandering loose on the steppes, and
heated shelters provided protection against the
harsh winters. Construction accelerated from 2,850
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 Livestock (million head)
Table 3
Mongolia: Key Agricultural Indicators
Wheat 320 253 316 188 114 N.A.
Barley 9 11 12 6 4 N.A.
Oats 21 31 31. 21 13 N.A.
Of which:
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1966 1967 1968 1969 1970
22.6 22:4 20.8 21.4 22.5
Sheep
13.8
13.1
13.1
12.1
12.6
Cattle
2.1
2.1
2.0
2.0
2.0
Goats
4.8
4.4
4.3
3.8
3.9
Horses
2.4
2.4
2.3
2.2
2.2
N.A.
N.A.
N.A.
N.A.
Grain (thousand metric tons)- 354 297 360 216 132 327
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shelters in 1967, before the killing winter, to
6,000 in 1968, to about 7,000 in 1969, but dropped.
to less than 6,000 in 1970. At the end of the
plan, about one-half of. the livestock were provided
with heated shelters.
12. The enclosure of livestock increased the
need for fodder and feed. All of the 15 feed plants
envisioned in the plan were completed, and total
capacity increased to at least 120,000 tons. De-
spite the increased capacity, only 50,000 tons of
mixed feed were produced in 1970 because of inade-
quate supplies of raw materials. Construction of
wells was also stepped up in order to improve grain
and fodder yields. By 1970, more than 2,500 wells
were constructed for irrigation purposes as well
as for watering livestock. in general, the Commu-
nist program for restructuring agriculture often
involves large investment costs which have no
immediate pay-off in larger output.
Industrial Performance
13. Animal processing is the largest'industrial
activity in Mongolia, and the shortfalls in indus-
trial production came primarily in this sector.
The production of leather footwear and processed
meat is indicative of how performance in the sector
fell behind plan (see Table 1). Nevertheless,
production of processed meat almost doubled during
the five-year period. With the completion of
Mongolia's largest meat-processing plant at Ulan
Baator in 1968, exports of processed meat replaced
exports of live animals.
14. Industries not dependent on agricultural
raw materials were largely successful in achieving
their goals. Electric power production reached
a..,aost 430 million kilowatt hours in 1970 on the
basis of new capacity constructed by the USSR and
Poland. Much of the increased output came from
two. new plants in Ulan Baator and Choybalsan. The
thermal powerplant No. 3 in Ulan Baator was con-
structed as part of a system to distribute electric-
ity throughout the north-central portion ofMongo-
lia. Electric power lines were constructed along
the Trans-Mongolian railroad from Ulan Baator to
Suhe Baatar near the Soviet border. This, Mongolia's
economic heartland (see the map), now will be
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provided with more electric power for coal mining,
animal husbandry, and timber production. The Choy-
balsan plant will provide electric power for the
new and rapidly growing eastern industrial area.
15. Coal production in 1970 reached about 2
million metric tons, double the output of 1965.
The Nalayha (near Ulan Baator), Sharyn Gol (near
Darhan), and-Aduuchuluum (near Choybalsan) open pit
coal mines are the largest producers and have an
annual capacity of 600,000, 1,000,000, and 200,000
metric tons, respectively. All these mines were
developed with Soviet assistance and are the primary
suppliers to the three major industrial centers.
Since the coal is a low-quality lignite, none is
exported. The coal is used primarily in the elec-
tric power central heating plants* and, to a lesser
extent, as a home heating fuel.
16. As for other mining activity, Mongolia has
reserves of tungsten, gold, and fluorspar, but no
data are published on production or reserves.. Geo-
logical surveys are continuing with assistance from
CEMA allies. Even if significant deposits are
located, much work would be necessary to make.
.exploitation economically feasible, especially, in
upgrading the transportation system. A large part
of Mongolia has forbidding climate.and terrain with
little else than dirt roads connecting small vill-
ages. The only railroads connect the three major
cities with the USSR and Communist China (see the
map) .
17. The construction materials industry had
mixed results during the plan, Lumber output more
than doubled, yet failed to meet plan goals. Pro-
duction of bricks registered no increase. Mongolia's
.first cement plant was put into operation in 1967
and output grew, steadily to the minimum 1970 target
level.
Foreign Assistance to Capital Construction
18 The USSR was by far the prime foreign con-
tributor to Mongolia's capital investment program,
* The electric power central heating plants supply
both electric power and heat to local facilities
and electric power to more distant consumers.
10
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extending a credit in :965 of $550 million for
projects under the Fourth Plan. in addition, the
USSR later agreed to finance emergency deliveries
of food and fodder during and after the disastrous
1967-68 winter and to underrwrite a stepped-up
agricultural construction program. It is believed
that the emergency deliveries at least were provided
as grants-in-aid. The USSR's East European allies
provided an estimated total of $60 million in
economic assistance during the plan period, probably
&t Soviet prompting. Mongolia received only one
other substantial credit, a 1:7 million extension
from Yu,'oslavia after the visit by President Tito in
1968.
19. Much of the Soviet and East European aid
was channeled into the development of Darhan and
Choybals&a and into agricultural construction.
The development of Darhan began during the Third
Five-Year Plan (1961-65). Many of the projects
were left incomplete, however, and construction
activity was extended into the Fourth Plan.
Mongolia's first cement plant, built with Czecho-
slovakian assistance, began operation in Darhan in
1967. Plants for processing animal products and
producing building materials were also constructed.
The development of Choybalsan in Mongolia's eastern
region has been an ambitious undertaking of the
Fourth Five-Year Plan, and construction activity
has progressed at a rapid pace. An electric power
central heating plant has been put into operation,
and many small-scale animal-processing plants and
construction materials plants have been completed.
Choybalsan, because of its accessability to the
Trans-Siberian Railroad, will become a major export
center of processed animal products.
20. Mongolia's foreign trade reflects the avail-
ability of Soviet credit assistance. Mongolian
imports, especially machinery and equipment, have
been growing at a rapid pace since 1965 while exports
have declined. The unbalanced growth in trade has
resulted in a $500 million deficit during 1966-69.
For the most part, deliveries under the 1965 Soviet
credit generated most of the deficit and accounted
for the rise in machinery and equipment imports,
as shown in Table 4. Mongolia's internal economic
difficulties also added to the size of the deficit.
Agricultural exports, which account for more than
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Table
C)
d ~'
z
r
1965
Total imports 126.8
Food and beverages 19.3
Crude materials 1.2
Fuels 10.0_
Chemicals 3.8
Manufactured goods 32.4
Machinery and equip-
ment 57.8
Residual- 2.3
Total exports 61.9
Food and beverages 27.5
Crude materials 32.2
Fuels --
Chemicals --
Manufactured goods 1.7
Machinery and equip-
ment
Residual =04:
1966
1967
1968
1969
158.0
186.4
193.9
196.2
18.3
21.8
16.0
25.4
1.8
2.0
1.8
2.1
8.6
9.8
10.2
11.6
4.8
4.0
4.0
3.9
39.9
42.5
40.6
34.4
81.8
102.8
'117.3
113.7
2.7
3.5
3.9
5.2
62.3
62.1
53.1
52.8
28.4
29.6
21.1
19.9
31.6
30.7
29.6
29.1
--
--
--
--
--
--
-
--
2.1
1.2
1.8
2.6
--
0.2
0.6
0.5
1.1
a. Becau_~e .of rounzt g, components may not add to the totals
shown.
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Mongolia: Trade
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80% of Mongolia's exports to the USSR, fell in
1968-69 because of the severe losses to both,live-
stock and grain crops. The agricultural setbacks
also affected Mongolian imports of food products,
which rose sharply after the droughts of 1966 and
1968. Because grain production was even loss in'
1969, imports of food products from the USSR orbb
ably increased further in 1970.
21. In sum, Soviet support has been and will
.continue to-be-crucial to the stability and develop-
ment of the Mongolian economy. This assistance
comes in several forms: substantial financial aid
through.long-term credits and outright grants;
delivery of machinery and equipment for industrial
and agricultural facilities; provision of construc-
tion teams by Soviet construction enterprises;
technical assistance provided by Soviet specialists
at construction sites, at operating plants, and
probably even in government ministries; and techni-
cal training of students and workers in Mongolia
and the USSR. For Mongolia, the Soviet economic
aid is large --- at $100 per capita per year,
Mongolia receives more Soviet aid per person than
any other country in the world. For the USSR,
Mongolia, plays a strategic role as a buffer between
it and Communist China. The USSR has been willing
to make-its significant aid commitment in order to
ensure Mongolia's continued military and political
allegiance in the Sino-Soviet dispute.
The Fifth Five-Year Plan
22. Premier Tsedenbal in a speech of 11 i'ebru-
ary 1971 noted that creating conditions for more
stable growth in agriculture will be the primary
objective of the Fifth Five-Year Plan (1971-75).*
Agriculture is allotted the largest share of capi-
tal investment resources, 35% of the total capital
budget of 5.4 billion tugriks, compared with a 26%
share in the preceding plan. The livestock herd
is expected to grow by 11.2% to 25.1 million head
in 1975.
23. In the attempt to strengthen the agricul-
tural base, efforts will be centered on construct-
ing heated livestock shelters and irrigation facil-
ities and on expanding fodder output and reserves,
* No e a2Z8 of the major five-year plan goals
have been announced,, except for the livestock herd.
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The construction of shelters will continue through-
out the new plan; about 21,000 shelters are. to be
built. The acreage devoted to fodder is to-be.;
expanded 1.8 times during the new plan, with pro-
duction of~all, types of fodder expected to increase
by 63% and fodder reserves,by 30%. The achievement
of the goals for fodder production will depend on
Mongolia's ability to expand irrigaticn facilities.
The plan calls for drilling more than 6,000 wells
and irrigating more than 14 million hectares of
pastures. With Soviet assistance, Mongolia will
also let up three additional state farms as experi-
mental research farms and will improve veterinary
facilities for the livestock.
'24. Expansion of industry will receive less
attention during the new plan than it did in the
past. Industry will account for less than one-
fourth of total capital investment, compared with
almost 30% during 1966-70. Raw materials, not
capacity, is industry's problem in the i;bort run.
Nevertheless, some expansion will continue, with
Emphasis on enlarging the animal-processing indus-
try around Choybalsan. The completion of this new
ind+astria3,.center will provide greater impetus to
Mongolia's lagging export sector.
25. The suc'sess of the Fifth Plan depends
heavily on Soviet economic assistance. Although no
data on Soviet aid to Mongolia have been, announced,
an economic agreei;;aczt was reached with the USSR in
October 1970, and Premier 7sedenbal has stated that
Soviet credit assistance will be greater than dur-
ing the previous plan. Thus Mongolia's dependence
on the USSR clearly cont,*.nues, and self-sustained
growth is a distant hope.
26. Mongolia has been slowly moving, with sub-
stantial Soviet aid, from an economy based on
nomadic animal husbandry toward an economy based
on ranch-type animaltraising and a small industrial
sector mainly engaged in the processing of livestock
products. The Fourth Five-Year Plan (1966-70) had
,two major setbacks: heavy winter losses to the
livestock herd in 1966 and 1968 and serious
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shortfalls in production of grain and fodder in
1968 and 1969 because of droughts. These losses
adversely affected performance throughout t'ie
economy and substantially offset the large aad
provided by the USSR. Thus during tha Fourth Plan,
only moderate gains were made in industrial pro-
duction and none at all in agriculture. Exports
fell behind schedule because of shortfalls in
domestic production, and food and fodder imports
had to be increased unexpectedly to meet shortages.
Strong support by other Communist countries caused
investment to exceed the plan goals.
27. The investment in livestock enclosures,
irrigation works, and industrial facilities during
the Fourth Plan brighten prospects for economic
advances under the new Fifth Plan for 1971-75. The
decision to make development of animal husbandry
the basic objective of the Fifth Plan and thus to
continue large agricultural investment allocations
durin~Y the next five years should reduce even fur-
ther the vulnerability of livestock and crops to
unfavorable climatic conditions as well as lead
to some improvement in veterinary and related
services. Industrial investment will have lessened
priority; the immediate problem in industry is raw
matera1; not capacity. Soviet economic assistance,
supplemented by smaller amounts from Eastern Europe,
wal play at least as important: a role in the new
pia.?; as in the last. The per capita assistance
nseuaa to transform the sparse nomadic Mongolian
population to a settled and planned way of life is
proving amazingly high.
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