Believe it or not, a mini-boom in Mongolia

Land-locked and remote, with few people, roads or easily-marketed resources, prospects seemed bleak for Mongolia after the Soviet collapse. But after some painful belt-tightening and a few false starts, this democratic nation is winning investment along with aid, and the admiration of free marketers.

By Ron Gluckman /in Ulaan Baatar, Mongolia

LEE CASHELL BOUNCES his four-wheel-drive to a stop on a roadless saddle between two lush green hills about an hour northwest of Ulan Bator. "Here it is," announces the American entrepreneur. "Mongolian Resorts!"

  Cashell envisions the first luxury resort in this Central Asian nation: 20 upscale gers - traditional circular felt huts - encircling a log lodge with pool and spa.

  Right now there is nothing but grass and yaks stretching to the horizon, but Cashell sees glass-walled villas rising up on the nearby rock formations. He’s confident he can open by next May, in part because Mongolia Resorts is backed by Uncle Sam.

  Since it split from the Soviet Union, Mongolia has found an aggressive new patron in Washington. The United States now provides a sizable chunk of $330 million in foreign aid each year, a third of Mongolia’s GDP, or about what the old U.S.S.R. provided until 1990.

  The reason: Washington sees strategic gain in supporting a free and democratic Mongolia, sandwiched between Russia and China in a region rife with dictators and swelling Islamic fervor.

   "This is a rough neighborhood, with rough neighbors," says a Western diplomat in Ulan Bator. "No former Soviet state has come so far, and no former communist country in Asia has shown as much commitment to reform as Mongolia."

  In the past 18 months or so, Mongolia has enjoyed a kind of delayed post-Soviet boom, as years of gradual reform (and U.S. aid) finally begin to pay off. While other former satellites, including Ukraine and Belarus, never fully recovered from a post-Soviet economic depression, Mongolia has regained its Soviet-era income level ($500 per capita) and is not looking back.

  Western investors have been pouring money into restaurant, travel, textile and mining companies. "This place is booming," says Cashell, the first beneficiary of a low-interest loan from the U.S. Overseas Private Investment Corp. Interest rates have fallen from 90 percent to 45 percent or less since 2001, and construction is surging.

  "Property prices have doubled in the last one and a half years alone," says Cashell, who also runs Mongolia’s first real-estate agency. "Rents are skyrocketing. Rental yields are the highest in Asia, by far."

  The boom is led by double-digit growth in finance, manufacturing, mining and tourism. On the streets of UB, as everyone calls the capital, $65,000 Land Cruisers and traffic jams are replacing Russian trucks and horses.

  What remains of the old Soviet architecture looks out of place among French bistros, German brew pubs and a popular lunch spot called Millie’s, run by an Ethiopian-American and her Cuban partner, Daniel Correa.

  "When we opened in 1998 we were the only place in town," he says, "Now there are so many. This city is getting cosmopolitan." At night, young women in daring outfits walk on the arms of men with flash London hairdos.

  No one name is synonymous with these changes—there’s no Yeltsin of Mongolia. Since the first election, in 1992, both the former communists and the opposition have pursued reforms.

  But the former communists get the bulk of the credit for creating the rare post-Soviet economy that presents foreign investors with no threat of violence or kidnapping, comparatively little red tape or official discrimination. People speak freely. Foreigners can get a pretty fair hearing in court, and can now own 100 percent of local companies, even in industries that many other emerging nations consider off-limits, like mining.

  "We have a genuine open market," says Otgonbat, the vice chairman of the five-year-old Foreign Investment and Foreign Trade Agency. "Prices are no longer fixed; they are free." The World Bank calls Mongolia "one of the most open economies" in Central Asia.

  At a time when a dictatorship (China) is prospering while many fledgling democracies are not, Mongolia is one answer to doubts about whether democracy promotes growth.

  That said, it is probably too offbeat to be a role model. With fewer than 3 million people, Mongolia is an extreme frontier where the earth’s southernmost glaciers glaze the sand of its northernmost deserts.

  There are no big-name multinationals here, just "a lot of guys making $150,000, one dollar at a time," says Cashell. There is no high-tech sector to speak of. A recent Ulan Bator Post headline boasted: "Mongolia Produces First Chips," referring to the potato kind.

  Double-digit growth is also relatively easy to achieve when one begins at zero. MagicNet, spun off from a state-run firm in 2002, is now the largest Internet provider, with fewer than 4,500 customers.

  Its American CEO, John Savageau, who once headed China operations for Sprint and Global One, says Mongolia is a place where a mere $100,000 investment can make a big impact.

  "It’s like one step from the Stone Age in many ways, but it’s seductive, this fledgling, fresh-out-of-the bottle economy," says Savageau. "People have great ideas, but not much else. Still, it’s a free place, and people have dreams."

  The dream of prosperity without repression has clearly taken seed in Mongolia. With luck, hard work and continuing Western aid, it will flourish for a long time.

Ron Gluckman is an American journalist based in Beijing, who travels widely around the Asian region for a variety of publications, including Newsweek Magazine, which ran this story in September, 2003.

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