Briefer for EAP Senior Advisor Keith

UNCLAS ULAANBAATAR 000320

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SENSITIVE
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TOKYO please pass to Senior Advisor Keith from Charge

E.O. 12958: N/A
TAGS: PREL PGOV PHUM ECON MG
SUBJECT: Briefer for EAP Senior Advisor Keith

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Distribution


1. We look forward to your visit, which will provide a
good opportunity to both review the relationship and
push selected issues.

Background on Post
--------------


2. (U) Briefings during the Friday country team will
provide you with background supplementing this
scenesetter. The one area which time does not permit
you an event is our important aid program. For a
second year in a row, the program (all ESF) has been
funded at $7.5 million; this is down from the steady
$10 million rate that had provided continuity.
Mongolia and other MCC-eligible countries have been
"taxed" 25% of their previous allocations -- even
though a compact has yet to be signed and there will be
no program overlap between USAID and MCC. Moreover,
without continued sustained efforts to push forward
economic policy reforms and combat growing corruption -
two hallmarks of the USAID program - it will be
difficult to ensure the conditions that are necessary
to successfully implement an MCC compact. USAID
currently provides economic policy advice which
supports macroeconomic policy reforms, competitiveness,
and growth; promotes microenterprise development in
rural and peri-urban areas; supports judicial reform;
bolsters parliament and the political participation of
women; fights trafficking in persons; and aids the
fight against corruption.


3. (U) The mission itself is in generally high spirits
after getting good reviews for last year's
extraordinary string of visits: Peace Corps Director in
July; Speaker Hastert in August; Secretary Rumsfeld in
October; and the President and First Lady and Secretary
Rice in November. By removing one major problem and
effective bar to assignment of families, the new
housing compound into which American personnel moved in
2003 continues to pay benefits in morale and
recruitment. While the embassy building itself has
benefited from the "wellness" program, managing the
growth of personnel and agencies continues to require a
shell game as we add onto and reconfigure the existing
space (we will soon have added six new American
positions in the last year, even before MCC comes in).
We have asked for more State staff, including an entry-
level econ/political officer for "transformational
diplomacy" purposes, a second OMS (for the soon-to-be-
combined Econ/Pol Section plus backup for our sole FO
OMS),and a financial officer.


4. (U) At the embassy town hall, we suggest you:

-- Acknowledge the Foreign Service National
Association, which is currently led by Ms. Bulgan (the
political assistant).

-- Thank personnel for their hard work every day, and
on the high-level visits during the last year.

-- Offer some comments from a Washington perspective.

Coffee with donors
--------------


5. (U) Invitees include the World Bank, ADB, IMF,
UNDP, and Japan and German aid agency representatives;
these are the largest donors to Mongolia. While you
may want to ask them for a brief listing of their most
important projects, the idea of this meeting is for you
to get the views of these key foreign representatives
on Mongolia's economic and political situation,
including the prospects for progress against
corruption.

Meeting with military
--------------


6. (SBU) Major General Borbaatar is the Ministry of
Defense's State Secretary (senior civil servant). The
military-military relationship is a thriving element of
our bilateral relationship. Although we take pleasure
in this, we think it advisable that these defense ties
(notably Mongolia's continued participation in Iraq and
Afghanistan coalitions) not appear to dominate other
bilateral news -- and therefore, for instance, have
advised that a military-military agreement not/not be
the first done under the aegis of the proposed
bilateral comprehensive partnership agreement.


7. (U) Mongolia's ongoing military transformation is a
success story for U.S. aid. Mongolia's aim over the
next half decade is to create a full brigade of
soldiers capable of taking part in UN peacekeeping
operations. This approach should spur transformation
of the remainder of the approximately 11,000 military.
Mongolia already has perhaps two companies toward the
brigade goal. In early May, the joint military
transformation planners will meet to work out the
details of how to spend the $15 million in aid the U.S.
announced last July ($11 million from the Coalition
Solidarity Fund, and $4.5 million from the Global Peace
Support Operations Initiative). We have requested FMF
levels go up from the current $1 million to $10 million
in FY 2008 and 2009.


8. (U) The small but increasing U.S. investments in
the Mongolian military since the mid 1990s have yielded
payoffs. Mongolia is on its sixth deployment of troops
to Iraq since 2003 (100 soldiers, down from 150 because
of a changed mission),its fifth rotation of artillery
trainers are in Afghanistan (13 soldiers),50 troops
have recently returned from a three-month mission in
Kosovo, and 250 soldiers are currently guarding the UN
war crimes court in Sierra Leone (Mongolia's first
armed UN mission). We and Mongolia are planning for
the multilateral Khaan Quest peacekeeping exercise in
August provided funding comes through by the end of
May; otherwise this high-visibility exercise could be
cancelled with concomitant embarrassment and political
repercussions.


9. (U) Suggested points:

-- Reaffirm U.S. commitment to assist with Mongolia's
military transformation and expand capacity to take
part in peacekeeping operations.

-- Express U.S. appreciation for Mongolia's
contributions to OIF and OEF.

-- Note its UN participation such as in Bosnia and
Sierra Leone.

-- Invite the State Secretary to review Mongolia's
military transformation plans and the "lessons learned"
from the recent spate of peacekeeping missions.

MFA Lunch
--------------


10. (SBU) Foreign Minister Enkhbold is traveling in
his constituency on Friday, but VFM Tsolmon will attend
as will newly appointed State Secretary Bekbat.
Tsolmon headed the Mongolian delegation to the CBRGI

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discussion in Washington in February. Items for
discussion:

-- Guatemala UNSC bid. After repeated recent
discussions, MFA is very familiar with the U.S. desire
for Mongolia to declare its support now, rather than
wait until August. On Tuesday, we learned that
Mongolia is trying to get Guatemala to agree to a
mutual support deal, which is part of discussions on
formal establishment of diplomatic relations: Mongolia
for Guatemala in 2006, Guatemala for Mongolia in 2008
(Mongolia will face off vs. Iran). It does not want to
"give away" its support to Guatemala, given the long
odds MFA sees for its own 2008 campaign.

-- Status of principles/comprehensive partnership
agreement. Our proposal on the table is that the
bilateral declaration of principles would be signed
here in May, between the Ambassador and (likely) the
Foreign Minister. The principles would provide the
foundation upon which separate sectoral pillar
agreements would rest, although the MFA reps continue
to press for a larger framework agreement beyond the
declaration of principles. A possible first "pillar"
agreement could be one in the cultural area,
incorporating cultural preservation and fleshed out
with a pending preservation project.

-- While talk about a visit to the U.S. this summer by
Foreign Minister N. Enkhbold seems to have died down,
MFA appears to be under strong pressure to have Prime
Minister Enkhbold visit this fall (perhaps around UNGA)
and "sign something" as a visible achievement: the
framework agreement, an MCC compact (we've explained
that MCC compacts are usually signed in the recipient
capital, and Mongolia's would not be ready until year's
end, most likely). We've also noted that -- however
Mongolia chooses to describe the visit itself -- a stop
in Washington by PM Enkhbold will not be an "official"
visit in U.S. eyes, and we make no guarantees on any
meetings. To salve this message, we've noted that
former President Bagabandi paid such "unofficial"
visits to Washington before he finally got his official
one in July 2004.

-- Due largely to the 800th anniversary celebrations,
this will be another big year for high-level visitors
here (including possibly Chirac and Japanese, Dutch,
and British royals). South Korean President Roh will
visit Mongolia in May. In turn, Tsolmon may ask you
for any news on who will head a U.S. delegation.

-- We suggest you also ask how Mongolia see its
relations with Russia and China developing. The
President's planned spring visit to Moscow has been
postponed till autumn, we hear, and frictions between
Mongolia and Russia have grown in recent months.

Meeting with Prime Minister Enkhbold
--------------


11. (SBU) Enkhbold has been Prime Minister since late
January, after being nominally an MPRP backbencher
since October 2005. Prior to that, he was mayor of the
capital and head of the Ulaanbaatar MPRP since 1998
(both politically important positions, given that
nearly 40% of the country's population resides here).
He has been head of the MPRP since June 2005, when he
narrowly won an MPRP vote, after winning Enkhbayar's
endorsement to succeed him as party head (which also
positioned him as a likely future PM). Corruption
rumors about Enkhbold (and about his payoffs to
Enkhbayar) are recurrent, many centering around the
process of granting land titles in the capital. His
background has not really provided any exposure to
international issues, although he seemed on top of his
brief in the Ambassador's initial courtesy call.


12. (SBU) Visible achievements of the three month-old
"government of national unity" have been modest, after
a budget-busting early decision to sharply hike
government salaries, pensions, and child stipends. The
government suffers from being an ad hoc temporary
alliance of the MPRP (with 38 parliament seats itself,
or exactly half) and four other much smaller parties
(with perhaps 10 MPs). Politically, everyone's main
task is to position themselves for the parliamentary
elections in June 2008, which loom ever larger. Policy
coherence and Cabinet discipline are in doubt.
Although Enkhbold benefits from the MPRP's numerical
dominance and greater discipline, he has far less firm
control of the MPRP than did Enkhbayar (the
constitutionally nonpartisan president remains an
influence behind the scenes).


13. (SBU) Policy fluctuations have been greatest on
the mining sector, although many top MPRP leaders
realize the importance of a business environment which
attracts Western investment -- but, as with likeminded
politicians from other parties, believe it would be
political suicide and ineffective to try to publicly
debunk populist sentiment upset that Mongolians remain
poor while foreign companies profit from high mineral
prices. After Minister for Industry and Trade
Jargalsaikhan (Republican Party) made remarks in
February which sometimes seemed to suggest the
government should take over 51% of the equity in
"strategic" foreign mining concessions, Enkhbold
established a working group chaired by the Deputy Prime
Minister to review government policy. In the last few
days, he met with protest leaders who had erected gers
on Sukhbaatar Square in early April, amongst whose
concerns was distribution of profits from. He agreed
to establish joint working groups with them to review
the legality of concessions granted foreign mining
companies, and these have started to meet. Enkhbold
does deserve credit for a generally restrained police
response to the protests (though police did demolish
one ger to the north of Government House on the evening
of April 25),and for the lack of the large-scale MPRP-
sponsored counterdemonstrations (a few small ones were
held) which would have produced an ugly and volatile
atmosphere.


14. (SBU) With the Prime Minister, we suggest that
you:

-- Stress the U.S. determination to maintain and build
upon the strong bilateral relationship in the wake of
President Bush's visit.

-- Express congratulations on Mongolia's 800th
anniversary, and state that we are in the process of
deciding on a U.S. delegation.

-- Note that Assistant Secretary Hill hopes to visit in
the next few months.

-- Be prepared to candidly discuss the Prime Minister's
possible visit to the U.S. this fall, if he raises it.

-- Reiterate our support for Mongolia's continued
economic and political transformation.

-- Convey our hope that the ongoing due diligence on
proposed MCC projects will enable the signing of a
Compact, in Ulaanbaatar, late in the year.

-- Comment that the U.S. government, as illustrated by
President Bush's remarks last November, hopes for
stronger anti-corruption steps, which will also be
important in the MCC review.

-- Note that MCC countries must undergo a review to see
whether they continue to remain eligible, and that such
a review will be conducted in October. Note that MCC
is particularly concerned about Mongolia's falling
corruption score, a hard hurdle to MCC assistance.

-- Urge that the State Great Hural (SGH) pass effective
anti-corruption, ethics, and anti-money-laundering
legislation in its current session, as the first
installment on Mongolia's implementations of its
obligations under the UN Convention Against Corruption.
Ask the Prime Minister for his assessment of the
likelihood of progress against corruption in the next
two years.

-- Urge that the SGH pass anti-money laundering
legislation, which has been delayed for the past two
years. (Note: Mongolia is due for review by the Asia
Pacific Group this fall and recent banking scandals
have increased international financial sector concern
as the reliability of Mongolia's banking sector. There
have also been attempts by DPRK banks to develop
correspondent banking relationships in Mongolia in the
wake of the Banco Delta Asia scandal in Macau.)

-- Urge that Mongolia substantially revise the State
Secrets Act and abolish criminal libel provisions,

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steps which would boost transparency and help fight
corruption.

-- Note our understanding that MFA is preparing for the
Cabinet a briefing paper on the PSI ship boarding
agreement which the U.S. has proposed, and state our
hope we can negotiate and sign an agreement in coming
months. (Note: MFA has told us it favors such a
negotiation, although the Ministry of Roads, Transport
and Tourism opposes, ostensibly for "sovereignty"
reasons, but likely for fear it will cut into its ship
registry revenues. Despite being landlocked, Mongolia
has a growing registry of 700 ships -- administered
minimally by a Singapore firm -- which troublingly
includes some North Korean vessels.)

-- Note that Washington is watching closely the
Guatemala-Venezuela UNSC battle, and that we hope for
positive news soon from MFA.

-- Express gratitude for Mongolia's humanitarian policy
toward North Korean asylum seekers, but urge that
Mongolian stop permitting North Korean contract
laborers because of concerns that they should be
regarded as forced labor. (Note: There are about 200
such workers, primarily in the construction industry,
with some proposals to bring more in. The ILO has
privately told the government it regards them as forced
laborers because they are likely not genuinely free to
leave their jobs if they wished to do so.)

Economic Roundtable
--------------


15. (U) The foreign and Mongolian businessmen at the
roundtable will be able to provide a picture of the
Mongolian economy. Given the importance of the mining
issue to the companies and to the Mongolian economy,
much discussion will center on that subject. High
world prices and expanded output were the key reasons
why Mongolia's economy grew 10% in 2004 and 6% last
year. Mongolia's textile production, exports, and
related employment have fallen with the demise of the
Multi-Fiber Agreement and will likely decline further
when temporary safeguards with China lapse.


16. (SBU) There is no U.S. mining company directly
invested here; however, American equity in most of the
western firms active in Mongolia fuels much of the
exploration in Mongolia. In addition, American mining
equipment and other durable goods (Ford, CAT and John
Deere are examples) have significant market share in
Mongolia. The embassy (like the World Bank and other
donors) has taken the neutral line that Mongolia needs
to be careful to create a business environment that
encourages investment and spurs growth. Even if no bad
policies are enacted, the danger for Mongolia is that
the populist rhetoric will scare off foreign direct
investment, and poison the ability of Western firms to
raise the essential loans or equity. That may leave
the field to Russian and Chinese firms with deep
pockets. Cynics note that, even though domination
(especially Chinese) by the neighbors of mining would
be seen as inimical to Mongolia's national interests,
such firms are also more likely to be willing to pay
bribes or agree to whatever non-commercial terms the
Mongolian propose, because these non-market Russian and
Chinese players know they will recover those costs by
transfer pricing schemes for shipping or power supply.

Political Observer Roundtable
--------------


17. (SBU) This event will provide an opportunity for
observers to share insights into Mongolia's political
scene, and the chances for greater transparency,
accountability, and action against corruption.

-- Mr. L. Sumati is Mongolia's foremost pollster and
the Transparency International representative. He
recently finished a poll on citizens' attitudes and
experiences with corruption, and is now at work on his
twice-a-year political opinions survey.

-- Mr. P. Erdenejargal is the Executive Director of the
Open Society Forum.

-- Ms. Kh. Khulan is a former Eisenhower Fellow who is
the Coordinator of Mongolia's follow-up efforts on the
International Conference of New and Restored
Democracies (ICNRD),including efforts to develop
democratic governance indicators.

-- Mr. Urnukh is the Acting Director of IRI, and Mr.
William Foerderer is the representative of The Asia
Foundation. IRI is implementing the USAID program of
assistance to parliament and support for women's
political participation, while TAF implements the
embassy's anti-corruption and anti-trafficking efforts.

Peace Corps Drinks
--------------


18. (U) This event will give you an opportunity to mix
with a group of volunteers who work in the Ulaanbaatar
area, or who happen to be in town, as well as to meet
several Peace Corps/Mongolia staff members. This is the
15th year of the Peace Corps program in Mongolia and,
for the second year in a row, the June training class
will be the largest in the program's history as a
direct result of requests from the Mongolian government
to Peace Corps officials. There are currently 88
volunteers in Mongolia. The new June class will
include 60 persons. Most volunteers are involved in
English language instruction, but are often active in a
variety of other projects on the side, including
efforts to combat trafficking in persons and assist in
website development. Volunteers serve across Mongolia,
though the prohibition on flying on MIAT domestically
has meant they no longer serve in every aimag
(province).

Political Dinner
--------------


19. (U) This dinner will provide you an opportunity to
mix with a diverse group of Mongolian politicians, from
the MPRP parliamentary caucus head and the new party
chief for Ulaanbaatar, to former Democratic Party PM
Amarjargal and Ms. S. Oyun, the impressive leader of
the Civic Will Party. Most of the guests speak English
well. You should know that a staffdel will visit
Mongolia May 8-12 to discuss a possible program under
the House Democracy Assistance Commission (HDAC). This
is an outgrowth of Speaker Hastert's visit last August.
One possible area of assistance might be to provide
Congressional expertise supporting expansion of the
State Great Hural's research capabilities.


20. (U) Possible subjects for discussion include:

-- MCC. Ms. Oyun is a member of Mongolia's National
Commission, and all guests will have an interest.

-- The prospects for action against corruption

-- The debate over foreign mining investment

-- The political dynamics in the State Great Hural.


21. (SBU) With respect to the latter topic, the SGH
session that began April 5 is the first since the
formation of the new government. The Shadow Cabinet,
which should combine the Democratic Party and Ms.
Oyun's Civic Will Party, is still on the drawing
boards. The parliamentary Democratic Party is
fractious. During January's political maneuverings,
four of the party's then 28 MPs voted to dissolve the
Elbegdorj government (three were later expelled from
the party),and another 17 (including dinner guest
Amarjargal) signed a letter offering to join in the new
government against party wishes. A Democratic Party
MP's death in late March will lead to a by-election
(perhaps in June) which may be hotly contested.


22. (U) As the notes suggest, Friday will be a very
full day; but one affording you both the opportunity to
press key U.S. agenda points with the government and
the opportunity to hear from a variety of actors and
observers. We look forward to seeing you Thursday
evening.

Goldbeck