Resolution

State Great Khural of Mongolia

May 21, 1996 No: 38 Ulaanbaatar

Ref: Mongolian State policy
on reforming government processes and
the general system of structure

State Great Khural of Mongolia DECREES:

1. To approve the “Mongolian State Policy on Reforming Government Processes and the General System of Structure”.

2. To entrust the Government of Mongolia to start the implementation of the Mongolian State Policy on Reforming Government Processes and the General System of Structure from 1996.

Chairman N. BAGABANDY

Copy is verified by: Deputy General Secretary
the State Great Khural
Office J. Enhchuluun

Approved by Resolution 38 of 1996
of the State Great Khural of Mongolia

MONGOLIAN STATE POLICY ON REFORMING
GOVERNMENT PROCESSES AND THE GENERAL
SYSTEM OF STRUCTURE

One. GENERAL JUSTIFICATION

1.1. The purpose of the Mongolian State policy on reforming government processes and the general system of structure (further called “Policy Paper”) is to redefine directions of government processes, to streamline its general system of structure through re-engineering, to introduce management methods suited to market economy relations in a democratic society, to reduce budget costs of public entities and raise their efficiency through enhancing the leadership role of the Government.

1.2. The following factors impact on the definition of the policy presented in the Policy Paper:

1.2.1. Political and Government service reform factors

As a the result of the democratic political reform a new governance system emerged which enables the top political leadership to be freely elected. As to the Government administrative service, conditions were created for streamlining the new management system for public administrative civil servants who carry on their services independently from the outcomes of elections.

1.2.2. Factors for shifting from the party-centered political system to a state-
centered political system

In a party-centered political system the ruling party imposed political control over the Government and public administrative central and local entities in the following ways:

· The ruling party formulated policies and plans , centralizing and allocating all assets and resources;

· Selecting and distributing personnel according to the list of official positions within the party competence;

· Although the auditing body was considered to be a state entity its main duty was to audit the compliance of decisions made by the Government and public administrative entities with the political lines of the party, and it was directly accountable to the party.

In the party-centered system there was a strict procedure according to which ministries had to carry out corresponding sectional policies and plans, hands-on control of all activities related to their sectors, and direct supervision and control over state enterprises and organizations.

The lack of public administrative mechanisms able to replace the party-centered system at the initial stage of the transition period led to a weakening of Government’s leadership and regulating activities. For instance, the dismantling of planning and controlling entities of centrally planned economy and the failure to establish entities replacing them in market economic conditions led to an underestimation of universal policy, planning, controlling and personnel management functions. Due to this, following conditions and shortcomings in government processes should be further overcome and remedied:

· Transition from a centrally planned economy to a market economy is a complex, prolonged process of radical political, economic, social and cultural changes. In a market economy in a democratic society government must assume among its duties not only promotion of the public sector but also a viable private sector.

· Since during the transition the private sector is incipient the role of the Government in its further consolidation is critical. Thus Government must not only transform itself but also concentrate its efforts on creating conditions conducive to the creation and consolidation of the private sector.

· As a result of the weakening of basic processes, entities assuming general governing functions, ministries, agencies and local administrative entities got a great deeper of relative autonomy. However, this has been limited somewhat by financial resource constraints. This resulted in deficiencies in the coordination between entities assuming general governing functions, ministries, agencies, and local administrative entities, lowering their effectiveness.

· In order to assume its leadership role the Government requires a professional government administrative service to perform effectively and efficiently the tasks offer formulating policies and implementing them. However, to date the Government administrative service reform is at a very initial stage.

· Seriously insufficient levels of Government income is the result of the disarticulation of the centrally planned economy base for government tax income before the market economy tax base has been created. Though informal business activities (trading without paying income taxes) tended to be the most dynamic at the beginning of the transition period, the situation was aggravated by an underdeveloped private sector (that should generate the majority of tax revenue). Thus, there is an urgent need to enhance further the tax system so that it betters corresponds to the market economy.

The abovementioned circumstances illustrate the necessity to streamline the processes of entities with general governing functions through establishing economic and financial systems adjusted to a market economy, and to strengthen the Government leadership role.

1.2.3. Organizational and staff rationalizing factors

At the beginning of the transition to the market economy or just after the macro-economic disequilibrium emerged, government budget deficit reduction measures were taken to downsize the staff of public administrative central and local entities, and budgeted organizations, some agencies were merged or discontinued, while some on-going programs, projects and actions were only partially implemented or totally discontinued. Cost-recovery was introduced for many formerly free services, and state subsidies to many state owned enterprises were discontinued. However, the objective of the reorganization and downsizing exercises was the reduction of the budget deficit and not the improvement of the performance of public administrative central and local entities. This resulted in a weakening of public administrative entities and a lowering of the quality of social services.

Due to the lack of resources and the low pay some public administrative central and local entities, state owned enterprises and civil servants’ major activities became the search for non-budgetary and supplementary sources of income. This started affecting the proper assumption of roles and functions by public administrative entities, and undermined the morale and productivity of civil servants.

The shortage of budget financing made ministries, agencies and local administrative entities put great efforts into the search for various forms of revenues outside of budget, such as external foreign loans and grant sources, renting office space in government buildings to private economic entities, organizations and individuals.

Ministries, agencies and local administrative entities still have been paying attention to creating a favorable production and service environment for state owned enterprises assigned to them and providing for their operation all round support and assistance. At the same time they have started adopting managerial methods of equal treatment of private enterprises. However, private sector enterprises tend to view ministries, agencies and local administrative entities as favoring public sector enterprises rather than their own leaders.

Ministries and agencies still prefer to keep central and local state enterprises, and budgeted organizations assigned to them within their own sphere of activities. This gives the feeling of the existence of a system of state economic groups consisting of a network of ministries, agencies, state owned enterprises, budgeted organizations and those who rent state real estate. Similar situations exist with local administrative entities. This demonstrates the continuing strong inertial impact of operations of public administrative central and local entities that correspond to the period of centrally planned economy.

The above mentioned circumstances prove the necessity to undertake public administrative reform not only in public administrative central and local entities, but at state enterprises, entities and budgeted organizations and state ownership prevailing joint stock companies as well.

1.2.4. Factors for decentralizing functions

Within organizational transformations, downsizing and budget cost reduction exercises, local administrations have been transferred functions to deliver health, cultural and educational services. However local administrations lack required managerial capacity, legal and economic conditions for assuming these functions. Although basic indicators of health and some other entities’ performance are positive , in the abovementioned circumstances criticism from the side of citizens pointing out the low quality of local social services in health, cultural and educational areas is quite natural. In the future it is crucial for the Government, ministries and agencies whilst decentralizing and transferring functions to local administrations to consider whether the required financial potential and managerial capacities exist locally to be able to assume these functions. If not, to consider and decide on the mechanisms for creating these potentials and capacities based on the views and wishes of local administrations.

Business interactions between all level of khurals and Governors are not adequate. Khurals of all levels underestimate their own roles, and there are cases when they limit their processes to only reviewing Governors’ programs. Genuine local self-governance has not been yet implemented by Khurals, and they have not yet realized the necessity of taking into their hands local development initiatives.

The scarcity of budgetary and financial resources also causes constraints for strengthening Governors’ Offices and streamlining Khural performance. The majority of local administrations are still heavily dependent on the central budget. Some local administrations have initiated self-financing and cover salary, electricity and heating expenses. However, local self-financing is not sufficient to provide proper level services and for undertaking local development initiatives. Financial sources are not available to enhance local administrations’ managerial capacities. For this purposes there is a need to strengthen the local budget revenue base and introduce local taxes. Based on this, it is required to reduce gradually the transfers by redistributing funds to the localities from the centralized budget. By thus doing it will become possible to define and enforce national minimal standards of services to be provided to citizens within administrative and territorial units, formulating and implementing local development general and top priorities, plans and programs.

Apart from delegating functions and duties decentralization in the sense of sharing power also means encouraging Khurals’ initiatives and expanding their authority. Besides that, there is a need to address the issue of enhancing their financial and managerial capacities.

1.2.5. Privatization factors

The privatization process has led to major overall economic restructuring. Over 900 large enterprises and about 3,000 small enterprises have been privatized. There remain 203 state enterprises, and a certain portion of shares in 259 joint stock companies, including 197 with majority state ownership. However, there exists no central state enterprise management system to represent state ownership in these firms, to assure their adaptation to the market economy during the transition period and active participation in the second stage of the privatization process, or to conclude and monitor the execution of future privatization contracts.

The second stage of the privatization process contemplates cash privatization mechanisms that will assure the sale of controlling blocks of stock. This will address the corporate governance and representation problem which arose from the voucher privatization of enterprises.

The corporate governance problem in privatized enterprises and companies consists of disperse stockholding by thousands of small investors with minuscule holdings spread throughout Mongolia . This dispersion impedes stockholder’s meetings and thus the election of Boards of Directors. In those enterprises with no State control, the lack of corporate governance leads to absolute control by management or enterprise workers. Stockholder’s interests and necessary restructuring are frequently disregarded in these circumstances.

It is hoped that the secondary securities market will contribute to the consolidation of shareholding in the point stock companies. However, the outcome of that process is debatable and not predictable. More promising is cash privatization (of controlling blocks) in those enterprises with continued state ownership. This process could also lead to conditions being set as part of the sale of the enterprises with regard to investment, debt, employment, exports etc. This could increase the possibility for the success of the privatized enterprises in the market economy. The effective implementation of these mechanisms requires addressing the corporate governance problem in enterprises. This will contribute considerably to adjusting the functions of the state and the government to the market economy and the consolidation of the private sector.

1.3. The inevitable need for public administration and civil service reforms originates from undergoing factors or/ “pressure points” which relate to the transition processes; macro-economic, social; budgetary, financial and management capacity problems impacting civil service.

Figure 1.1: Pressures for Public Administration Reform

1.3.1. Transition pressures

Thess pressures define inevitable needs for reforms contemplating the creation of conditions for overcoming the transition processes.

There exists insufficient understanding of the market economy in general combined with an insufficient comprehension of the role of government in a democratic, market economy based society. Some government officials occupying top executive and senior managerial positions in the Executive branch of the government do not fully understand how and in which manner to perform in order to assume government functions to provide public services to the population and what is expected of them from the side of the people. The existing style of operation is seen to result in an inadequate assumption of special state roles and functions, considerable duplication and disbursement of efforts and resources.

The government administrative service and civil servants must perform in order to implement state roles and functions, and final outputs should be measured by their implementation. Since public administrative entities have not yet determined fully their state roles and functions in the new circumstances it is quite complicated to assess their performance.

The Executive branch of the Government faces the problem of neutralizing the forces prolonging the transition processes and delaying reforms aimed at creating favorable conditions for advancing these processes.

1.3.2. Macro socio-economic pressures

This pressure determines the urgent need for reforms targeted at creating a macro socio-economic environment facilitating social development.

At the macro-economic level, relative monetary stability has been achieved, the economic decline appears to be bottoming and some initial positive signs of growth and development have emerged. However, conditions for economic regulation and sustained growth have not yet been achieved and unemployment and poverty are significant. The scope of social services is expanding but its quality still leaves much to be desired. This is exacerbated by investment shortfalls and disruptions in internal/external trade flows. In other words, the lack of favorable macro socio-economic environment suitable for development puts pressure on the processes of the Executive branch of the Government.

1.3.3. Fiscal pressures

This pressure defines an urgent need for reforms envisaging the creation of an adequate fiscal environment through reducing the government budget and operating deficits and enhancing its solvency.

Presently, fiscal pressures cause enormous difficulties to the Government. The government budget and operating deficits are high and continue to remain high, even though only the most basic and essential services are being provided. The debt/GDP ration of Mongolia is growing (with little immediate prospect of reducing this trend without growth of GDP and budget revenues, and drastic cuts in expenditure).

There appears to be minimal potential for new sources of revenue, at least in the near term. Ministries and agencies are generally resource starved, the staff poorly paid and operating budgets insufficient to carry out their functions. For addressing the foregoing problem, international financial institutions are recommending to impose strong control over programs, costs, spending and operations. Otherwise, there may be difficulties in negotiating with donors and international agencies for loans and assistance.

1.3.4. Management capacity pressure

This pressure defines the need for reforms designed to create a government administrative service with the capacity to cut costs and raise effectiveness and efficiency.

Human resources management factors are underutilized. The management techniques and skills that may have been appropriate for centralized management, planning and control are not appropriate for the transition and democratic/market based systems.

New management, accounting and auditing systems are incipient. The skills of managing and executive staff are not up to market economy requirements. It is crucial to improve considerably public service quality through creating managerial capacity for enhancing cost effectiveness.

The abovementioned four types of pressures prove the need for inevitable government reform processes and the need to define its general system of structure.

Two. POLICY ON REFORMING MONGOLIAN
GOVERNMENT PROCESSES

2.1. In accordance with item 2, Article 1 of the Constitution democracy, fairness, freedom, equality, ensuring national unity and respect for Law are basic principles of Governmental processes.

The Government based on the foregoing basic principles assumes the roles, functions and mandates of a supreme Executive branch of the government within the framework of the undergoing laws:

à Constitution of Mongolia
à Law on the Government of Mongolia
à Law on Administrative and Territorial Units, and Their Governance
à Law on Government Service
à Other Laws

In the transition to a market economy in a democratic society the Government must assume policy, planning, regulatory and service providing functions in the national interests to achieve the goal of enhancing its management and national leadership capacities.

2.2. The Mongolian national development concept contemplates overcoming the transition period, national economic renaissance and stabilization, and creating a sound, self-sustaining economy. It covers three stages of implementation:

· The first stage, to the year 2000, will promote stabilization of the economy and lay the basis for further growth. This stage includes implementation of the Public Administration Reform program as well as laying down the prerequisites for subsequent efforts to ensure domestic supply of strategic products, to increase domestic savings for meeting investment requirements, to alleviate poverty and unemployment, and to set up a sound social infrastructure.

· The second stage, from 2000 to 2010, will implement the objectives of further rehabilitation of the economy and lay down the basis for stable growth and self-sustaining economy. The economic structural reforms will be intensified, particularly with regard to strengthening their export orientation, increasing the economic growth rate and expanding the basis for tourism in the economy.

· The third stage, beyond 2010, will involve the creation of environmentally sound export-oriented rational economic complexes based on national and world high technology, to enable Mongolia to take its own place in Asia and particularly in North East Asia . Full self-sufficiency will be obtained in energy, fuel and food products. The economy will be relatively independent, with processing enterprises and services providing added value to agricultural and mineral production, while tourism complexes will be intensively developed.

It can be seen that a precondition for the success of the National Development Strategy is reforming Government processes to the extent necessary to achieve required national leadership and management capacities.

2.3. The Government will define in its business program its priorities for its mandate term and the draft of this program should be approved according to the procedure defined by Law and implemented.

Current Government of Mongolia priorities are:

· Macroeconomics stability
· Alleviation of unemployment and poverty
· Development of management capacity (including accounting, auditing, financial and state property management)
· Reform of the public administration and civil service (including decentralization and local administration strengthening)
· Development of the education sector including sciences
· Privatization including cash privatization and secondary securities market
· Development of the legal and legislative systems and their enforcement
· Development of infrastructure (e.g. railroads, air transport, power and communications)
· Rehabilitation of national industry

Government priorities shall serve as the basis for elaborating policy papers and making amendments to them.

2.4. Based on the mission to create a democratic, humane civil society in the country, pronounced by the Constitution, and the National Development Concept designed for its implementation, the Strategic Business Mission of the Government of Mongolia in nearest 10-15 years has been defined as follows:

- MISSION-

To adapt government to the requirements
of the market economy in a democratic
society and assist the creation and
consolidation of a viable private sector

2.5. To achieve the stated mission the following government strategic objectives to be achieved within the near five year term are proposed:

2.5.1 Strengthen the national leadership role of government and implement major operational improvements: In the light of the stated mission and analysis of the existing, a major refocusing and repositioning of the general system of the government business structure is required. The role of the government well suited to the general system of its business structure must be one of leadership; providing planning and policy direction; facilitating and enabling a productive private sector; ensuring the safety, health, education, and well being of Mongolia’s citizens. The Government structure must be small, effective, competent and focused and well suited to the general system of the government business structure.

2.5.2. Strengthening the government’s executive management capacity: The objective here is to strengthen the executive management capacity of government. This includes enhancing the management capacity of the Cabinet Secretariat - the management adviser of the Cabinet and the Prime Minister. Specific measures will be taken to ensure effective executive decision making at the highest levels of the executive branch of government, including effective coordination and distribution of responsibilities and accountability between the government and local administrative entities.

2.5.3. Strengthen local self-governance and local administrations: Local self-governance is a basic foundation for a democratic society. Effective capacity must exist at the local level where the bulk of key government services are delivered (e.g. health, culture, education, other social services). The local governor’s Offices must be strengthened for this purpose. This also implies effective fiscal and financial management, public participation in democratic processes, and non duplication with the state supreme executive branch of government.

2.5.4. Provide an enabling environment for the private sector: In redefining the role of government at all levels, the government must increasingly be seen as an enabler and facilitator of private sector development - the major productive sector Mongolia . This strategic objective involves the undertaking of cash privatization as the second stage of the privatization process, the restructuring of privatized enterprises, and small and medium-sized enterprise promotion. Enterprise restructuring and small and medium-sized enterprise promotion will be undertaken by the private sector itself and facilitated by non-governmental organizations with government support.

2.5.5. Manage public administration reform impacts and adjustment: The achieving of the preceding four strategic reform objectives will be difficult and will impose some short term dislocations and hardships on various segments of the government and society. To ameliorate these reform impacts, specific measures will be taken to manage their effects through a range of workforce adjustment, community development programs and labor relations.

2.6. Listed below are Government operating objectives supporting the above-mentioned Government strategic business objectives:

à Operating objectives for strategic objective 1: “Strengthen the national leadership role of government and implement major operational improvements”

2.6.1. Strengthen Government’s strategic policy and planning capacity

2.6.2. Strengthen Government’s development planning and economic
management capacity

2.6.3. Define the optimal number of governmental sectors, and the optimal
number of line ministries in each sector

2.6.4. Restructure line ministries as focused policy and planning entities

2.6.5. Establish an optimal set of government regulatory agencies

2.6.6. Establish new criteria for the operation of government implementing
agencies and budgeted entities

2.6.7. Establish arrangements for government’s involvement in the state enterprises
to distinguish between policy, investment, and managerial goals

à Operating objective for strategic objective 2: “Strengthen the government’s executive management capacity”

2.6.8. Strengthen the role of the Prime Minister and Cabinet

2.6.9. Strengthen management support to the Prime Minister and Cabinet

2.6.10. Strengthen Government’s financial management and auditing capacity

2.6.11. Consolidate the management of Government common services

à Operating objective for strategic objective 3: “Strengthen local self-governance and local administrations”

2.6.12. Strengthen the capacity of all levels of local Khurals to enable them to effectively perform their functions

2.6.13. Strengthen the capacity of local Governors’ Offices to enable them to
effectively perform their functions

2.6.14. Increase local level finances

2.6.15. Strengthen Government-local administrative entities relations

à Operating objectives for strategic objective 4: “Provide an enabling environment for the private sector”

2.6.16. Undertake cash privatization as the second stage of the privatization process

2.6.17. Undertake enterprise restructuring to strengthen management and the
operations of large privatized enterprises

2.6.18. Support business development by promoting non-governmental service delivery

à Operating objectives for strategic objective 5: “Manage public administration reform impacts and adjustments”

2.6.19. Manage adverse impacts of reform implementation

2.6.20. Improve the motivation and morale of the Civil Service

2.7. The Government business strategy model is graphically presented below, by listing reform action objectives and their interrelations:

A total of 40 reform actions are designed to implement 20 operating objectives, which
in their turn are geared at attaining 5 strategic objectives, while the strategic objectives should facilitate achieving the Government’s strategic business mission. In sum, all these objectives package and define the comprehensive policy for the Government of Mongolia’s strategic business reform.

Three. POLICY ON REFORMING THE GENERAL SYSTEM
OF THE MONGOLIAN GOVERNMENT BUSINESS STRUCTURE

3.1. The Policy on reforming the general system of government business structure originates from the Government comprehensive business reforms and leads to identification of 5 basic, specific, distinct governmental sectors:

3.1.1. The environmental sector, covering natural resources (land, water, flora/fauna). This sector’s goals stress maintaining the quality of and maximizing the benefits from the nation’s natural assets.

3.1.2. The productive sector, covering agriculture, industry, mining. This sector’s goals stress growth and development to increase the well-being of the nation.

3.1.3 The infrastructure sector, covering energy, public utilities, construction, transport, communications and information. This sector’s goals stress building and maintaining the nation’s physical assets.

3.1.4. The social sector, covering health, education, culture and welfare. This sector’s goals stress enriching and sustaining the quality of life for the Mongolian population.

3.1.5. The core function sectors, covering justice, defense, external affairs. This sector’s goals stress upholding and maintaining core national values.

3.2. The Government business structural general reform model is defined as shown below

3.2.1. Line ministries assuming strategic planning, providing policy guidance, formulating programs, regulating, monitoring, evaluating and assessing functions.

3.2.2. Regulating agencies assuming legislation and standards’ enforcing functions.

3.2.3. Implementing agencies assuming policy implementing functions. Policy implementing functions might also be assumed by economic entities with total or partial state ownership, by the private sector or non-government organizations (NGOs) on contract basis with the Government.

3.2.4. Local administrative entities - all level Governors’ Offices assuming local territorial strategic planning, providing policy guidance, formulating programs, monitoring, evaluating and assessing functions. Implementing agencies and budgeted organizations shall implement policies. Private sector and NGOs may assume functions of implementing some policy objectives, getting required financing from the state budget.

3.3. Entities with general management functions (national development planning, macro-economic analyses, financial, personnel, supporting executive management) and inter-sectional government agencies assuming other functions (trade, labor, customs and tax) will support the operation of line ministries.

The Government will assume leadership functions. The Cabinet Secretariat is the Government apparatus designed to support the leadership functions of the Prime Minister and the Cabinet.

The Public and private sectors will assume the role of generator of national development, progress and economic growth.

Four. POLICY ON METHODS AND RESOURCES
FOR REFORMING THE GOVERNMENT
OF MONGOLIA ’S PROCESSES AND
THE GENERAL SYSTEM OF STRUCTURE

4.1. The Policy on reforming Government processes and general system of structure will be guided by following principles:

4.1.1. Economy of size: Mongolia ’ national development requires the most effective administration possible with the smallest apparatus possible. This will permit concentration of the nation’s small labor force and scarce resources in the productive sector for national development.

4.1.2. Effective executive leadership: Achievement of reforms will depend on strong, visible and effective leadership from the center combined with appropriate, integrated accountability infrastructures across government. Central governmental processes need to be strengthened to guarantee global coherence and to reduce the length and costs of the transitional period.

4.1.3. Effective ministry management: Leadership will be replicated at the line ministry level. This leadership will also be national in the sense that it is for both public and private sectors and for the central and local levels. This will be accomplished through policy and planning functions undertaken in a highly consultative manner. These policies should not favor state owned enterprises at the expense of private entities. The private sector should look to ministries as enablers and facilitators of their development, not as competitors and obstacles.

4.1.4. Rational regulation: Regulatory functions will be kept simple and will be undertaken by as small a set of agencies as possible. Their objective will be to protect national interests, stakeholders (workers, consumers, investors, air passengers, the population in general etc.)

4.1.5. Rational service delivery: Implementing agencies, public administrative and budgeted entities with clear mandates will undertake specialized tasks with as high a level of professional competence as possible. There will be flexibility with regard to their management and financing. They will be autonomous and self-financing to the extent possible. Financially, they may be fully subsidized, partly self-financing, or fully self-financing. Governmental subsidies for social reasons, or for reasons of national security, will be transparent and for service delivery and its overhead, not necessarily administrative expenses. Where appropriate, these entities will be subject to private sector competition and also consider the contracting of private sector services where this is more cost effective. Fully self-financing entities will be periodically reviewed to determine if they should be reorganized as state owned enterprises or privatized.

4.1.6. Close to the customers: Service delivery will be placed as close to the needs of citizens as is possible and economical, given prevailing budgetary constraints. The precise level of a given service (central, aimag, district, soum, bag) will vary from service to service. The execution capacity of Governor’s Offices must be strengthened in order to improve service delivery at all local levels.

4.1.7. Effective local governance: To effectively achieve the constitutional provision that the local administration should be a combination of state governance and self-governance, two elements are essential: the strengthening of local Khurals and the creation of an economic and financial base (local tax and property) for local development. This will generate conditions for citizens participation in setting of service and investment priorities, as well as in development project execution. The relationship among governor’s Offices/local Khurals/local civil society will also be articulated in order to firmly establish local democracy.

4.1.8. Effective state enterprise management: State enterprise management will be supported by a specialized agency to facilitate the cash privatization process, to prepare enterprises for privatization, to conclude and monitor compliance with privatization contracts, to facilitate enterprise restructuring, to ameliorate the corporate governance problem many enterprises face, and to improve enterprise management with a strong entrepreneurial approach.

4.1.9. Common administrative service delivery: Common administrative services (i.e. services provided internally to government clients) will be managed and delivered through a common internal market services delivery framework. This will result in economies of scale, reduced costs of operations, increased and more effective service levels, and revenue generation. Government investments and assets will be managed strategically, and standards for common infrastructure will ensure better coordination and sharing of scarce government resources.

4.1.10. Enabling the private sector: Private sector development must be undertaken by the private sector itself. Government can create the appropriate enabling environment. It can also facilitate this process through the mobilization of the resources necessary for capacity building. In Mongolia , most of the resources available for the necessary capacity building are from external cooperation sources prioritized by the government. In these circumstances, the best institutional arrangements for private sector development can be service delivery for capacity building through non-governmental organizations with governmental support. Government can provide these NGOs with appropriate policy support and the prioritization of external cooperation resources to finance their capacity building activities.

4.2. The scope of the public administration reform as presented in the Policy Paper is defined as given below: This scope is limited by the Government Supreme Executive Branch plus related entities subordinated to it.

Figure 4.1: The scope of public administration reform

Entities involved Major functions & the business scope
1. Prime Minister, Cabinet, Cabinet Secretariat 1. National leadership & strategic guidance
2. Entities with general governing functions (central ministries) 2. Comprehensive policy & planning
3. Line ministries 3. Sectional policy & planning
4. Regulatory & Implementing agencies 4. Regulation & service delivery
5. Local administrative entities 5. Leadership at local administration level & service delivery
6. State owned enterprises 6. Goods, services, Government priorities
7. Joint stock companies with total or prevailing state ownership 7. Goods, services
8. Management development institutions 8. Management training, consultancy
9. Non-government business development entities 9. Self-development of private sector with Government support

4.3. A priority of the Government is to implement a “style of management” which flows from its democratic structures and the transition to a market economy. The key features of this style are:

4.3.1. Delegation of authority: i.e. flows from Parliament to Government (Prime Minister and Cabinet) to Ministers and then to ministry and agency management. Delegation with autonomy should characterize the efficient management of state owned enterprises.

4.3.2. Decentralization of decision making: programs and services are as close to client communities as possible, are flexible, responsive and relevant, and effectively coordinated.

4.3.3. Achievement of results: implies planning, reporting and evaluation based on well-defined program objectives and achievements.

4.3.4. Application of values: quality of service, ethical and non-partisan conduct, prudent use of public funds.

4.3.5. Transparency and accountability: operations of government are open to the public and have clear lines of responsibility.

4.4. Management values which constitute a new organizational culture will be applied.

The Government will apply a management culture that relies more on the ability of managers to manage and less on Government resolutions, decisions, other instructions and procedures (or the “laws”). This relies on reasonable delegation of authority to managers and a distinct move away from “command and control” types of systems and methods. At the same time managers must not only have greater accountability for ensuring skillful management but also they must share a collective responsibility for the effective overall management of government. The new management culture must be reflected in a cohesive set of management values, to be rigorously applied, by not only government organizations but also by individual civil servants.

The role of Government must be and be seen as leader and catalyst in the provision of services, rather than a “doer”. The Government must ensure that managers manage within an appropriate accountability framework. While some differences will apply to various government operational entities as a function of their individual missions, the management values to be developed and encouraged through Public Administration Reforms reinforce the Government’s “Philosophy of Management”. The management values of this new culture are:

à customer oriented services (defining the customers, ensuring their needs are met)

à strong working and partnership relations, trust and respect

à leadership and vision

à strong, entrepreneurial, innovative and creative management

à continuous improvement and experimentation

à loyalty, dedication and commitment to quality/value-for-money

à professionalism, integrity, judgment, discretion and excellence

4.5. Figure 4.2. illustrates the Government Business Strategy Reform Policy (mission; strategic objectives; main objectives; reform action objectives) management, planning and implementation hierarchy, synergy of measures for implementing policy goals included in this hierarchy and the support systems (public administration reform program, assessment and measuring of achievements, management values, principles to be guided).

Figure 4.2: Planning and Implementation Framework

Time frame 10-15 years MISSION

Time frame 5 years STRATEGIC OBJECTIVES [total = 5]

Time frame 1-5 years OPERATING OBJECTIVES [total =20]

MAJOR REFORM ACTIONS
[Carried out as Projects/Project Outputs]

PUBLIC ADMINISTRATION REFORM PROGRAM
(Management Development Program)
MANAGEMENT AND CONTROL

EVALUATION AND MEASUREMENT OF ACHIEVEMENT
(Of Mission , Strategic and Operating Objectives, Activities)

SUPPORTING MANAGEMENT VALUES AND GUIDING PRINCIPLES

4.6. Virtually all levels and segments of Mongolian society will be involved and/or impacted directly or indirectly by the Public Administration Reform. However, certain components of government and other entities will be the driving forces for the implementation of the reform, while other levels, groups and entities within society will need to be actively involved.

The following government entities will directly lead and implement the reform:

· Prime Minister
· Cabinet
· Cabinet Secretariat, Central Government Entities
· Line ministries
· Regulatory Agencies
· Implementing Agencies and Budgeted Entities
· Local Administrations
· State Enterprises and Joint Stock Companies with State Holdings
· Non-Governmental Organizations with Government Support
· Civil Service (i.e. individual civil servants)

The entities listed below will give support to the Public Administration Reform:

· State Great Khural or Ikh Khural
· President
· All level Khurals

Finally, to ensure eventual success of the Public Administration Reform, special considerations need to be factored for such special groups and entities as:

· Private sector
· International/national investment community
· International donor community
· Media organizations
· Local/national community organizations
· International/national volunteer organizations

4.7. The strategic objectives, guiding principles and management values for the Public Administration Reform imply a shift in the operations and structure of all ministries and agencies of government. This shift is aimed at performing basic functions by government within a democratic, market-oriented environment. Under this proposal there are five basic types of government functions which have to be performed further by adopting new methods:

· Definition of policy basic directions
· Organization of policy implementation
· Accountability
· Resource management
· Executive management

4.7.1. Defining policy basic directions: The ways in which Ministries carry out their mandates for directing the affairs of the nation in a market-oriented environment is through indirect measures of strategic planning and policy guidance, rather than through direct measures of command and control of policy implementation. Ministries should formulate and implement policy and coordination, as well as monitor and evaluate policy implementation. The specific functions involved are:

· Strategic planning - setting national goals, and choosing the most appropriate policies and programs for reaching them.

· Providing policy guidance - instituting appropriate incentives (rules, regulations, compensation, rewards etc.) for motivating people and organizations to achieve the national policy goals in a market-oriented environment.

· Programming - mandating government agencies to undertake specific actions to achieve policy goals, and making available public resources for this purpose.

· Coordination - facilitating interaction and synergy between agencies involved in policy implementation.

· Monitoring and evaluation - observing the progress towards policy goals, and the impact of policy guidance and program efforts.

In a market-oriented environment, the power of a Minister to control the direction of government is not reduced. It is exercised differently. Ministries will not be directly involved in policy implementation, thus creating conditions for autonomous operation of implementing agencies.

4.7.2. Policy implementation: Government will assume in the following way its functions to organize policy implementation:

· mandates like maintaining national security, legislation and standards enforcing and regulation for the sake of government processes and the people will be carried out by autonomous specialized agencies employing modern management practices

· these mandates will be carried out through budgeted entities, state enterprises or subsidizing privately owned entities or NGOs, by influencing the provision of goods and services for reasons of ensuring social equity, balancing inter-regional interests or other policies.

4.7.3. Accountability: A democratic state structure relies on accountability instruments to sustain legitimacy. Elected representatives at central and local levels are the link between the operations of government and the people. The role of these representatives is to ensure government’s responsiveness to the people’s needs and aspirations. In the present environment, the performance of accountability functions require:

· strengthening the links between government operations and political authorities at the local levels

· assuring accountability for results of government policies, programs and expenditures

4.7.4. Resource management: Transparency and accountability help to ensure that cost-effectiveness is a top priority in all government operations. To set results by placing greater attention to resource management functions require measures such as:

· putting a sound financial management and auditing capability in place

· consolidating and streamlining administrative common service functions

· introducing re-engineering and other modern management practices and techniques in all ministries and agencies to get costs down to the minimum

· divesting or contracting out service delivery functions which can be efficiently and effectively performed by the private sector or NGOs

4.7.5. Executive management: Focusing government machinery toward the attainment of policy goals is the core of business re-engineering. To better perform executive management functions, the following is called for:

· instituting measures which strengthen the ability of the Prime Minister and the Cabinet to focus on strategically important issues.

· maintaining a public service profile and by having a small, high-quality, motivated staff.

4.8. International experience in both developed and developing countries undergoing major public sector reforms underscores the fact that the method of implementation determines the degree of success as much as other key factors. The following approaches have chosen in that they are best suited to Mongolia ’s unique situation, national public administration, and political specifics:

4.8.1. Phased approach: The implementation of various reforms must be phased and logically synchronized with other major agendas of government: political and election agenda, general socio-economic situation, etc. These phases will allow for constant feed-back and adjusting plans as circumstances warrant.

4.8.2. Incremental: The reform actions must be implemented incrementally, starting with more achievable reforms, then moving forward with other reforms, constantly building on success. Moreover, the initial reforms lay the foundation for additional reforms. A key feature of this approach is the use of pilots whether they are in the form of geographical areas, functional process components or organizational components.

4.8.3. Process review: Workshops and discussions will be widely employed for reviewing reform processes.

4.8.4. Methodological adaptation: It is clear that Mongolia does not have all the resources required to implement all reforms in a comprehensive manner. Consequently, a special methodology for implementation will be selected and specially adopted to the needs of the national environment. No single methodology will be best; rather a set of methodologies will be selected and applied covering the many dimensions of the project.

4.8.5. Keeping things simple: Great care will be taken not to build in unnecessary complexity into either the global reform project, or the individual reform actions. Solutions to the noted public administration problems mentioned above will be kept simple, and a continuous change process will be built into the reform implementation process.

4.8.6. Manageable chunks: It will be important to only select manageable reform actions. There will be a natural tendency to do more than the internal capacity limitations will allow. The complexity and volume of the workload will be carefully mapped to internal strength and skill levels; where capacity is low, then internal project capacity will be developed where needed.

4.8.7. Authority, accountability and resources: The body to implement a specific reform action will require the assignment of specific accountability and authority, and the availability of need resources. The implementation body cannot assume responsibility if the corresponding authority and resources are not assigned.

4.9. Given the fiscal situation in Mongolia , the design and execution of the Public Administration Reform requires significant resources. The projects executed or in execution with donor countries and international agencies technical assistance total to US$ 11.5 million, the projects pending donor approval total an additional US$ 16.9 million. The resources required further for phased undertaking of the Public Administration Reform will be obtained through seeking funds from donor countries and international agencies.

4.10. Five phases for implementing the policy presented in the Policy Paper are described as follows:

4.10.1. PHASE 1: Policy development: (To formulate the policy for addressing the problem after determining the reasons for reform)

( 1 July, 1995 - 30 June, 1996 )

4.10.2. PHASE 2: Initial policy implementation: (To initiate partial reforms in accordance with the policy)

( 1 July, 1996 - 30 June, 1997 )

4.10.3. PHASE 3: Implementation of the Policy: (Full-swing reforming in accordance with the policy)

( 1 July, 1997 - 30 June, 1998 )

4.10.4. PHASE 4: Completion of policy implementation (To undertake measures to deepen the reform based on policy implementation process and outcomes)

( 1 July, 1998 - 30 June, 1999 )

4.10.5. PHASE 5: Development of new policy alternatives: (To work up new policy alternatives based on a comprehensive assessment and a summary of policy implementation and causes of newly emerging problems)

( 1 July, 1999 - 30 June, 2000 )

It is proposed that the set of reform actions be implemented over a five year period. This will allow sufficient time for undertaking the reform. The process to develop and further expand full achievement of the mission will take quite a longer period of time. The main hurdles, however, must be overcome in the first five year period.

4.11. The following are some assumptions to be considered in the course of the Public Administration Reform:

4.11.1. Any election outcome is not expected to significantly alter the public administration presented in the Policy Paper.

4.11.2. The reforms will be “politically neutral”. In this regard, there will be sufficient stability for the business strategy from political perspectives.

4.11.3. Donors have expressed interest in continuing sufficient support. This support will be focused on key result areas and coordinated.

4.11.4. There will be broad-based acceptance and buy-in of the Reform program at all levels: political, bureaucratic, public, and internationally from the donor community.

4.12. The following factors will form key elements of the public administration reform strategy and plans with regard to their formulation and operation:

4.12.1. Commitment: there will be sustained, continuous and visible commitment and support for the reforms from the most senior levels of government (the Prime Minister, Cabinet and Ministers).

4.12.2. Ownership: there will be a strong sense of “Mongolian Ownership” of the reform initiatives and broad-based buy-in at all levels of the Public Administration and Civil Service.

4.12.3. Affordability: All costs associated with reforms will be considered as strategic investments. Reform projects will be kept as simple as possible, avoiding unnecessarily complex approaches that the country might not be able to afford.

4.12.4. Incremental Capacity: reforms will be implemented in a phased, modular and incremental manner. This will ensure that only “manageable” chunks will be tackled at any point in time in full consideration of existing capacity and the resources that are available.

4.12.5. Risk, expectations and change: conscious efforts and methods will be applied to manage the critical variables of change, expectations and risks. This will ensure that adjustments will be made as and when they need to be made and that there will be minimal “surprises”.

4.12.6. Practicality: all reform initiatives will be practical, doable and workable.

4.12.7. Pilots: key reform measures will be implemented through well-focused pilot projects delivering and building on established successes.

4.12.8. Partnership: reforms will be implemented through partnerships and teams consisting of national staff supplemented by international experts.

Five. RESULTS OF IMPLEMENTING THE POLICY
ON REFORMING GOVERNMENT PROCESSES
AND THE GENERAL SYSTEM OF STRUCTURE

5.1. The following key result areas are expected to be attained thanks to implementing the policy on reforming government processes and the general system of structure and undertaking the public administration and civil service reforms:

Figure 5.1. Key Result Areas

1. To Support 2. To Support Market-based
Democracy Economy

Public
Administration and
Civil Service
Reform

3. To Reduce 6. To increase Government
Government Costs Image and Improve its
Credibility

4. To Increase Efficiency 5. To Improve Accountability
and Effectiveness and Control

5.2. At the global level, the public administration and civil service reforms are designed to support the transition process, which in its turn subdivided into two key areas: support to democratic structures and processes and support to continued development of a market-based economy.

The abovementioned key result areas and concrete challenges have interrelated and measurable outcomes as illustrated below:

Figure 5.2: Measures of Achievement by Key Result Areas

Key Area Specific Measures
1. Enhancement of democracy · greater transparency of government operations· greater accountability of government institutions and managers· greater public participation in government processes· greater access to and freedom of information.
2. Support to market-based economy · enabling legal infrastructure and regulatory framework· government as a provider of services, not producer· privatization of SOEs and other government services· promotion of internal and external trade and investment· alliances with business promotion NGOs.
3. Reduction in cost of government · short term reduction in expenditure through reduction in duplication and rationalization of service production and delivery· sale of non-productive government assets· consolidation of common internal services· downsizing of the civil services
4. Efficiency and effectiveness improvements · re-engineering and application of information technology· move to client service and service delivery culture· decentralization, organizational renewal· training and development, increased morale· administrative policy infrastructure based on guidelines that let “managers manage”· re-structuring of major programs and organizations
5. Improved accountability and control · new budgeting and expenditure management system· establishing new accounting and audit system · delegation of authority and clear-cut accountability structures· performance measurement and program evaluation· business plans for all major operations
6. Improved image & credibility of government · stronger information exchange and public relations· increased understanding of the role of government internally and externally· well defined mission and vision for government