Mongolia is a relative newcomer to a market economy. Prior to the former government's (NDU) ascension to power, an estimated 80% of the Mongolian economy was under state control and the government budget remained unbalanced. Enkhbayar faces many of the same issues as former Prime Minister Amarjargal, including significant social and economic dislocations caused by economic change in the previous decade, particularly increased homelessness, hunger, and crime. As of 2001, an estimated 35% of the Mongolian population was living below the poverty line. About 50% of the population live and work in rural areas, while more than 40% are heavily dependent on nomadic, herding lifestyles, subsisting largely on bartering and the sales of leather, wool, milk, and meat.
In the wake of dzud (severe blizzards) in the winters of 2000 and 2001, more than 75,000 families in inner Mongolia were near starvation. By January 2001, more than 220,000 heads of livestock were lost due to the storms. This prompted the influx of foreign aid, particularly food aid. In 2000 and 2001, the European Union (EU) provided around € 2.9 million to address the consequences of the dzud .
Enkhbayar had several goals, including maintaining both political stability and a multiparty democracy, improving the economy, and reversing the decline in standard of living. Even with a strong commitment to aggressive privatization, the economic situation in Mongolia is bad: growth is slow and fails to attract adequate foreign investment. Enkhbayar has implemented plans to raise wages and pensions and to reorganize the rural herding economy to boost the incomes of nomadic people; however, this continued to prove difficult. While privatization has made pasturing near urban areas more lucrative, herders are finding that there is not enough viable pasture land near cities. The lack of roads makes herding in urban areas more unmanageable, especially during winter months when 90% of the country may be covered in snow and roads inaccessible.
Enkhbayar's vision of reform includes a plan for modernization and urbanization that may seem to be at odds with the traditional nomadic lifestyles of many Mongolians. In an interview with the Far Eastern Economic Review , he stated: "It is not my desire to destroy the original Mongolian identity, but in order to survive we have to stop being nomads." Enkhbayar proposed building cities across the country and urbanizing up to 90% of the population over 30 years. The project proposes the construction of "Millennium Road," a crosscountry highway, and the development of Internet, communications, and banking infrastructures by 2015. The US $200 million needed for the road project alone will necessarily come from a combination of domestic and foreign sources. Enkhbayar cites international lending agencies, fees for mineral exploration licenses, and government funds as possible sources.
In May 2002, Enkhbayar established a working group to document poverty reduction, macroeconomic stability, structural adjustment and the repercussions of Mongolia's current level of indebtedness. In spite of the deadly dzud of the past two years and slow economic growth, according to figures reported by the Asian Development Bank, growth in Mongolia's GDP was projected to reach 3% for 2002 and was expected to climb to 4.9% in 2003. Current modernization plans were expected to increase the deficit by 14%, but this may be offset by increasing confidence among foreign investors due to the government's demonstrated commitment to social and economic reform.