A Post-Soviet Surprise.(Mongolia thrives on U.S. foreign investments)(Column)

Lee Cashell bounces his four-wheel-drive to a stop on a roadless saddle between two lush green hills about an hour northwest of Ulan Bator. "Here it is," announces the American entrepreneur. "Mongolian Resorts!" Cashell envisions the first luxury resort in this Central Asian nation: 20 upscale gers--traditional circular felt huts--encircling a log lodge with pool and spa. Right now there is nothing but grass and yaks stretching to the horizon, but Cashell sees glass-walled villas rising up on the nearby rock formations. He's confident he can open by next May, in part because Mongolia Resorts is backed by Uncle Sam.

Since it split from the Soviet Union, Mongolia has found an aggressive new patron in Washington. The United States now provides a sizable chunk of $330 million in foreign aid each year, a third of Mongolia's GDP, or about what the old U.S.S.R. provided until 1990. The reason: Washington sees strategic gain in supporting a free and democratic Mongolia, sandwiched between Russia and China in a region rife with dictators and swelling Islamic fervor. "This is a rough neighborhood, with rough neighbors," says a Western diplomat in Ulan Bator. "No former Soviet state has come so far, and no former communist country in Asia has shown as much commitment to reform as Mongolia."

In the past 18 months or so, Mongolia has enjoyed a kind of delayed post-Soviet boom, as years of gradual reform (and U.S. aid) finally begin to pay off. While other former satellites, including Ukraine and Belarus, never fully recovered from a post-Soviet economic depression, Mongolia has regained its Soviet-era income level ($500 per capita) and is not looking back. Western investors have been pouring money into restaurant, travel, textile and mining companies. "This place is booming," says Cashell, the first beneficiary of a low-interest loan from the U.S. Overseas Private Investment Corp. Interest rates have fallen from 90 percent to 45 percent or less since 2001, and construction is surging. "Property prices have doubled in the last one and a half years alone," says Cashell, head of Mongolia's first real- estate agency. "Rents are skyrocketing. Rental yields are the highest in Asia, by far."

The boom is led by double-digit growth in finance, manufacturing, mining and tourism. On the streets of UB, as everyone calls the capital, $65,000 Land Cruisers and traffic jams are replacing Russian trucks and horses. What remains of the old Soviet architecture looks out of place among French bistros, German brew pubs and a popular lunch spot called Millie's, run by an Ethiopian-American and her ...