Mongolia's mineral-rich economy washit extremely hard by the global downturn during 2008-9,when copper prices plunged, external demand fell, and growthcollapsed. The shock exposed serious underlying weaknessesin the management of the country's natural resourcewealth, particularly the lack of policies to insulate theeconomy from commodity cycles and real exchange rateappreciation pressures, an inadequate safety net, and poorpublic investment planning. These issues gained furtherurgency with the signing of a major copper mining deal in2009 that further increased the country's mineraldependence. As part of its reform efforts and with theassistance of the World Bank and the International MonetaryFund (IMF), the government began an intensive south-southexchange, notably with Chile, another major copper producer,on strengthening the policy environment. The dialogue provedcritical in the passage of several landmark laws within thespace of a few years, including a fiscal stability lawmodeled after Chile, and the accompanying integrated budgetand procurement and social welfare laws. These reforms willbe crucial in managing the boom-bust cycle of mineral pricesand mitigating Dutch disease effects by anchoring a prudentcountercyclical fiscal policy, strengthening publicfinancial management, increasing savings, and providing afiscally sustainable social safety net targeted to the poor.
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