Mongolians head to the polls on Sunday seeking to elect a government with a large enough mandate to tackle rising inflation and push through agreements that would allow the country's vast mineral wealth to be tapped.

Both major parties, the ruling Mongolian People's Revolutionary Party (MPRP) and the Democratic Party, were confident they could win a majority and avoid the instability that followed the election of a hung parliament in 2004.

We believe we will have enough seats to form a cabinet alone, said Gombo Tsogtsaikhan, head of the Democratic Party's policy formulation unit.

The MPRP, the reincarnation of the party that ran Mongolia as a Soviet satellite state through much of the last century, was also predicting a win.

We do expect to get a majority. During these elections, we hope the majority of the people of Mongolia will give their votes to our party and election platform, said the party's secretary-general, Yondon Otgonbayar.

Sandwiched between Russia and China, Mongolia has less than 3 million people, about half of whom are nomadic herders living on its rolling grasslands. But it has huge economic potential because of its mineral wealth, and politically it is seen as a beacon of democracy in Central Asia.

The two parties say they support parliament's long-awaited ratification of a draft investment agreement that would allow the Gobi desert Oyu Tolgoi copper and gold project, to be developed by Ivanhoe Mines and Rio Tinto, to go ahead.

The agreement, which the companies predict would increase Mongolia's GDP by 34 percent, could clear the way for future deals to extract its resources, which include coal and uranium.

But with at least 13 other parties on the ballot and a new election law that changes the first-past-the-post system to one that offers more proportional representation, the poll could be thrown wide open.

That could mean more voice for those wary that deals with foreign miners would bring little national benefit and much environmental damage, and mindful of the legacy of the socialist model in which mines were exploited to feed Soviet industry.

We support foreign investors, but our platform says the Mongolian state needs to keep a controlling stake, at least 51 precent, said Galbasuren Batzandan, chairman of the coalition Civil Movement Party.

The group, which says it is focused on poverty alleviation and curbing corruption, is hoping for 11 seats, meaning it could become the power broker in a tight race.

A close election could also mean a scenario similar to 2004, when the vote resulted in 36 seats each in the 76-seat parliament, or Great Hural, for the MPRP and an opposition coalition, leading to weeks of backroom bargaining before a government was formed.

The country has seen three prime ministers since then, none strong enough to ratify the investment agreement.

Although Mongolia's economy grew 9.9. percent in 2007 compared to 7.5 percent the previous year, inflation has ballooned to 15.1 percent, its highest rate in over a decade.

With the country reliant on Russia for oil and gas and on both Russia and China for grains and produce, the major parties are eyeing increasing domestic food production and developing oil and gas resources to better control prices in future.

Analysts said keeping a grip on the economy and would be key to keeping Mongolia's young democracy thriving.

You don't want that high inflation and high unemployment to become a breeding ground for new authoritarianism, said Stephen Noerper, an analyst at the Nautilus Institute think-tank.

It's more than just an election, it's a lot about the viability of the system. (Editing by Nick Macfie; Editing by David Fox)