In the past, Mongolia operated on the basis of a planned economy, with five-year plans implemented from 1947 until 1990, with assistance from the former USSR and China. In 1990, with the establishment of a new consensus government, there followed a three-year plan that aimed for achieving greater efficiency in the allocation of resources and a diversified economic base by undertaking a sustained transition to a free market economy. The change was a fundamental shift, as the government relinquished its role as the primary factor in the economy and began limiting itself to policies supporting a market-oriented economy. Main components of the government's program include privatization of state enterprises, price liberalization, changes in national law, and an action plan for environmental protection. Current plans specify development of the country's energy and mining sectors, and further action in environmental protection as well as continued reforms in a number of areas including fiscal management, land tenure, and social benefit entitlements.
In 1996, the initial phase of privatization of state property was completed. According to the government, 100% of small- and medium-sized enterprises were privatized as well as 97% of the country's livestock. In 2000, the private sector accounted for 72% of GDP. At the end of the 1990s, however, the government's commitment to privatization and market reforms appeared to be weakening. However, the government that took office in August 2000 renewed the effort at gaining macroeconomic stability and restoring the momentum for reform. In September 2001, the administration entered into a three-year arrangement with the IMF under its Poverty Reduction and Growth Facility (PRGF) supported by stand-by funds of SDR 28.49 million (about $40 million). In a 2002 review, the IMF commended the government on progress made to contain inflation, but noted that improvements were needed in fiscal transparency and accountability.
In July 2002, a pledge meeting of the Consultative Group (CG) for Mongolia, consisting of donors from 20 countries and 18 international organizations in addition to representatives of various civil and private organizations, agreed on the importance of the government's addressing governance issues: ensuring accountability, promoting transparency, controlling corruption, reforming the judiciary and strengthening the rule of law. Priority areas of action stressed were energy and information and communications technology (ICT), as well as preparation of a long-term strategy for rural development. The donors pledged $333 million in support of Mongolia's development efforts in 2003.