Since achieving independence from China in 1921, Mongolia has made consistent attempts to expand political participation beyond tribal and religious identities and affiliations. An attempt was made to build a Soviet-type political regime based on political parties, a parliamentary system, and Communist ideology. The Mongolian People's Party was founded in 1921, and renamed the Mongolian People's Revolutionary Party (MPRP) in 1924. Until 1990, Mongolia preserved a one-party political system in which the MPRP remained the main political force.
Influenced by the late 1980s reforms of USSR leader Mikhail Gorbachev, the Mongolian Constitution was amended in 1990, and the first multiparty election for the Great Hural (Parliament) took place that same year. The MPRP was challenged by the newly formed Mongolian National Democratic Party (MNDP), the Mongolian Socialist Democratic Party (MSDP), and several others. The MPRP gained almost 80 percent of the seats in the new Parliament and formed a government led by President Punsalmaagiin Ochirbat. Despite their overwhelming victory, the former Communists showed a great sense of tolerance toward the opposition and promoted genuine reforms in liberalizing the political and economic system, introducing a new constitution (1992) and a new unicameral (one house) Parliament. However, the MPRP had a serious setback when President Ochirbat broke with his party; in 1993 he won the first direct presidential elections as an opposition candidate. In 1996, the Democratic Coalition, led by the MNDP and the MSDP, defeated the MPRP, taking 49 of the 76 seats in Parliament. The Democratic Coalition advocated a greater opening up of the economy and full privatization. In the 1997 presidential election, President Orchibat, the Democratic Coalition candidate, lost to MPRP candidate Natsagiin Bagabandi, who came to power calling for greater social assistance and more balanced reforms. The MPRP further strengthened its position in the July 2000 Parliamentary election, taking 72 seats. This latest Mongolian transition was largely peaceful, and its military does not play any active role in its politics.
Throughout the 1990s, the government promoted market-oriented reforms, abandoning the centrally planned economy and focusing on privatization, price liberalization, and a new monetary system. However, the state's sudden withdrawal of subsidies led to a steep transitional recession affecting almost all sectors of the economy, especially construction and industries. The weakness of the legal system and the inability of state institutions to implement property rights and contract law undermined confidence among local and foreign investors.