On the eve of the Mongolian Revolution of 1921, Mongolia had an underdeveloped, stagnant economy based on nomadic animal husbandry.
Farming and industry were almost nonexistent; transportation and communications were primitive; banking, services, and trade were almost exclusively in the hands of Chinese or other foreigners.
Most of the people were illiterate nomadic herders, and a large part of the male labour force lived in the monasteries, contributing little to the economy.
[1] Property in the form of livestock was owned primarily by aristocrats and monasteries; ownership of the remaining sectors of the economy was dominated by Chinese or other foreigners.
[1] These temples were centres of education and health care, although the majority of economic activity was in the form of nomadic herding.
Although trade was typically in the form of a physical medium (sheep or bricks of tea), by the mid-1800s, foreign currency, such as silver taels, had begun to circulate.
Individuals outside of monasteries owed a great deal to temples to cover their debts, with loans carrying interest rates of 40 to 60%.
During the first period, which the Mongolian government called the stage of "general democratic transformation," the economy remained primarily agrarian and underdeveloped.
Transportation, communications, domestic and foreign trade, and banking and finance were nationalized with Soviet assistance; they were placed under the control of Mongolian state and cooperative organizations or Mongolian-Soviet joint-stock companies.
[2] During the second period, called the "construction of the foundations of socialism," agriculture was collectivized, and industry was diversified into mining, timber processing, and consumer goods production.
[2] The third stage, which the government called the "completion of the construction of the material and technical basis of socialism," saw further industrialization and agricultural growth, aided largely by Mongolia's joining the Council for Mutual Economic Assistance (Comecon) in 1962.
After the Sino-Soviet split, Chinese aid ceased, but continued with Soviet and Eastern European financial and technical assistance in the forms of credits, advisers, and joint ventures enabled Mongolia to modernize and to diversify industry, particularly in mining sector.
Although animal husbandry was stagnant, crop production increased dramatically with the development of virgin lands by state farms.
Transportation and communications systems were improved, linking population and industrial centers and extending to more remote rural areas.
Private ownership was negligible in all sectors of the economy, except animal husbandry, but economic reforms adopted since 1986 gave greater leeway for individual and cooperative enterprises.
The Council of Ministers constitutionally was charged with planning the national economy; implementing the national economic plan and the state and local budgets; directing financial and credit policy; exercising a foreign trade monopoly; establishing and directing the activities of ministries and other state institutions concerned with economic construction; defending socialist production; and strengthening socialist ownership.
[7] National economic plans included general development goals as well as specific targets and quotas for agriculture, capital construction and investment, domestic and foreign trade, industry, labor resources and wages, retail sales and services, telecommunications, and transportation.
The western region (Bayan-Ölgii, Khovd, Uvs, Zavkhan, and Govi-Altai aimags), with 21 percent of the nation's population, was predominantly agricultural.
Local industry was engaged in processing of animal husbandry products, timber, minerals, and building materials.
[10] The central economic region (Arkhangai, Bayankhongor, Bulgan, Darkhan-Uul, Dornogovi, Dundgovi, Khövsgöl, Ömnögovi, Övörkhangai, Selenge, Töv aimags, and Ulaanbaatar) was the dominant producer.
Grain production on large state farms hewed out of virgin lands contributed 90 percent of the region's agricultural output.
This program had five goals: acceleration of development; application of science and technology to production; reform of management and planning; greater independence of enterprises; and a balance of individual, collective, and societal interests.
These changes rationalized and streamlined state economic organizations; reduced the number of administrative positions by 3,000; and saved 20 million tugriks between 1986 and 1988.
State enterprises also were to sell output exceeding state orders and unused assets; to establish their own, or to cooperate with existing, scientific organizations to solve scientific and technical problems; to be financially responsible for losses, and to pay back bank loans; to set prices independently; to establish wage rates based on enterprise profitability; to purchase materials and goods from individuals, collectives, state distribution organizations, and wholesale trade enterprises; to establish direct ties with foreign economic organizations; to manage their own foreign currency; and to conduct foreign trade.
Individual agricultural cooperative members and workers were allowed increasing numbers of privately held livestock.