After 70 years as a centrally planned economy, Mongolia has undergone a difficult transition towards a free market system since 1990. With the help of active government promotion, the country's industrial sector grew steadily for several decades, expanding from 7% of the national income in 1940 to 35% by 1997, as agriculture's share of total production declined from 79% to 31%. Despite these changes, animal husbandry has remained a dominant sector of the economy, with live animals and animal products accounting for a major share of current exports, and livestock providing much of the raw material processed in the country's industrial sector. Total Soviet assistance at the height of Soviet support amounted to 30% of GDP. A number of factors, including the sudden cessation of economic aid from the former Soviet Union and allied countries, the disruption of trade with traditional trading partners, as well as a severe winter in 1990/91, caused a steep decline in the country's economic activity in the early 1990s. The annual growth rate of the GDP dropped steeply from 8.3% to -9.5% in 1992, and -3% in 1993.
Despite these difficulties, the government continued its economic transformation program involving the privatization of most previously state-owned enterprises and other policy reforms. In 1994, GDP grew by 2.3%, followed by further increases of 6.3% in 1995, 2.6% in 1996, 4% in 1997, 3.5% in 1998, 3.2% in 1999, 1.1% in 2000 and 1.4% in 2001. Although the economy has grown steadily since 1994, the economic wellbeing of most people is still in decline. Inflation reached a peak of over 325% in 1992, accelerating faster than wages, but dropping to about 4% in 1995. In 1999, inflation jumped to 10%, and was at 8% and 8.1% in 2000 and 2001. Development of the country's rich oil and mineral resources continues to be a high priority, and negotiations for the exploitation of oil, gold and rare earth elements with foreign companies are being actively pursued. Estimates for 2002 were for a real GDP growth rate of3.9% and an inflation of 6%.