MCC EURASIA DIRECTOR REID'S MEETINGS WITH

UNCLAS SECTION 01 OF 03 ULAANBAATAR 000499

SIPDIS

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STATE FOR EAP/CM
STATE PASS USTR FOR WINELAND
DEPT OF COMMERCE FOR ZHEN GONG CROSS

E.O. 12958: N/A
TAGS: EINV PREL EAID PGOV MG
SUBJECT: MCC EURASIA DIRECTOR REID'S MEETINGS WITH
MONOGLIAN LEADERSHIP

SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET
DISTRIBUTION.


1. (SBU) SUMMARY: Millennium Challenge Corporation
Eurasia Managing Director Frances Reid met with
Mongolia's President, Prime Minister, Speaker, and Vice
Foreign Minister, among others, during the course of
her June 12-22 visit to Mongolia. During her meetings,
she expressed appreciation for the hard work done by
Mongolia's MCC National Council and Working Groups,
noted her visit was designed to hone and refine
Mongolia's five project proposals, and flagged the need
for specialized expertise to advance this process
including identifying time and cost trade-offs for the
GOM's consideration. She told her GOM interlocutors
that, given the work remaining, a compact signing was
unlikely this calendar year but perhaps possible in
early 2007. In separate meetings, the President sought
housing solutions to preclude poor ger districts from
becoming permanent. The Prime Minister promised "some
money" to pay for needed expertise, the Speaker said
needed anti-corruption legislation would soon be
passed, and the Vice Foreign Minister sought details on
compact signing date prospects. Reid told the
Ambassador that her visit had made considerable
progress in bringing specificity to Mongolia's
proposals yet much remained to be done before a compact
could be signed. END SUMMARY.

INTRODUCTION AND VISIT BACKGROUND
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2. (SBU) MCC Eurasia Managing Director Frances Reid,
accompanied by MCC Mongolia Director James Hallmark,
visited Mongolia June 12-22 to assist Mongolia's MCC
National Council in defining and refining its MCC
compact proposal projects, as part of MCC's due
diligence phase. Over the course of their visit, they
met extensively with the MCC National Council (NC) and
the NC's project working groups (WKG) as well as
relevant Ministry and Government of Mongolia (GOM)
officials, including from the Ministries of Finance,
Foreign Affairs, Health, Urban Development and
Construction, and Education, Culture, and Science as
well as the Information and Communications Technology
Authority and the Mongolian Railroad Authority. This
cable summarizes highlights of her meetings,
accompanied by Mongolia Director Hallmark and DCM, with
the President, Prime Minister, Speaker of the State
Great Hural (parliament),and Vice Foreign Minister.

REID'S COMMON THEMES: MAKING PROGRESS, NEED TO REFINE
AND DEFINE, HIRE EXPERTS, COMPACT MAYBE NEXT YEAR
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3. (SBU) In her meetings described below, Reid made
essentially the same or similar points, including:

-- Acknowledging the many unique challenges Mongolia's
complex situation and projects must address;

-- Reviewing the purpose of her trip, that being to
achieve clarity, definition, and specificity in
Mongolia's five project areas (low income community
development (formerly known as ger area development,"
health, vocational education, an information and
communication technology (ICT),and railroads):

-- Expressing appreciation for the hard work done by
Mongolia's MCC NC and WKGs;

-- Flagging the need for specialized expertise (whether
Mongolian or expatriate) to advance project definition;

-- Emphasizing that the goal was to present clear
options for the GOM to make decisions;

-- Noting Mongolia's parliament was currently
considering legislation directed at the problem of
corruption; and,

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-- Highlighting that, given the work remaining
requiring special expertise, it appeared unlikely that
a compact could be signed this calendar year, but that
MCC hoped to do so early in 2007.

PM ENKHBOLD NOTES PUBLIC FRUSTRATED BY DELAYS;
COMMITS "SOME MONEY" TO OBTAINING NEEDED EXPERTISE
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3. (SBU) During her June 14 call on Prime Minister
Enkhbold, the PM began by reviewing recent trends in
the bilateral relationship, including the November 2005
visit by President Bush. He underscored the importance
of Mongolia's MCC proposals as part of Mongolia's
continuing economic and political transformation.
Enkhbold noted that delays in concluding a compact had
led to some frustration as well as lower expectations
and confidence. He stated that the GOM had indicated
the GOM itself could devote "some money" to developing
the projects to achieve a compact.

VFM INTERESTED IN COMPACT SIGNING TIMING
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4. (SBU) On June 15, Vice Foreign Minister Tsolmon
sought from Reid specifics on how much money would be
required to fund needed experts and how much time the
experts would require before a compact could be signed.
Reid replied that it was too soon to know in both cases
as the projects themselves have not yet been narrowed
to the point where reasonable estimates could be made
that would enable the GOM to make informed decisions
which would necessarily need to consider the balance
between time and costs. Reid reviewed with the VFM the
status and prospects of the five project proposals.
The two had an extended exchange concerning the
viability of a second, additional rail line in the
absence of Russian concurrence and cooperation vis a
vis the existing joint Mongolian-Russian rail venture,
with the VFM again intimating the GOM may seek to "go
it alone" without Russian assent.

SPEAKER: PARLIAMENT WILL PASS NEEDED ANTI-CORRUPTION
LEGISLATION; SLOW MENTAL ADJUSTMENT TO MARKETS
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5. (SBU) During her June 15 meeting with State Great
Hural (parliament) Speaker Nyambdorj, the Speaker
stressed that the SGH would soon pass two pieces of
legislation of interest to the USG, those being anti-
corruption and anti-money-laundering legislation, prior
to the SGH's recess in early July. The Speaker
reviewed Mongolia's accomplishments during the past 16
years following the peaceful transition from communism
and Soviet domination as well as Mongolia's unfinished
tasks, including increasing employment and economic
development. While much of Mongolia's economy had
transferred from the state to private control, the
Speaker asserted, private sector-led growth had yet to
be fully embraced or energized. Corruption remains a
problem, the Speaker admitted, saying corruption was,
in part, an off-shoot of the rapid shift toward
capitalism - everyone wants to get wealthy and the
opportunities to do so - legally or illegally -- had
grown significantly. Nyambdorj acknowledged the
importance of vocational education in terms of
producing an employable labor force. He also
underscored that the GOM and the ruling political
parties had not fully adjusted to the consultative
process as well as the new, expanded role of the
private sector, but it was endeavoring to learn quickly
and make the shift in that direction.

PRESIDENT HOPES GER DISTRICTS ONLY A TEMPORARY
PHENOMENON; SEEKS HOUSING SOLUTIONS
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6. (SBU) On June 20, President Enkhbayar was also
interested in MCC's compact timetable and he listened

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attentively to Reid's review of the project proposals.
He was particularly interested in housing finance and
mortgage proposals and stressed that Mongolia's long-
term goal was to produce more housing so that ger
districts would not become long-term permanent fixtures
on UB's horizon. (Note: This dovetails well with his
party's unfunded proposal to build 40,000 apartments.)
He also hoped for increased job creation, perhaps with
greater emphasis on small and medium enterprises as
well as micro-finance. Having just returned from the
Shanghai Cooperation Organization meeting in Shanghai,
where he met with Russian President Putin and Chinese
President Hu Jin Tao, Enkhbayar signaled increased
Russian rail-sector cooperation was unlikely,
emphasizing the need to press ahead with a Mongolian-
owned second rail. The President was also interested
in prospects for a second compact.


7. (U) MCC Eurasia Managing Director Reid cleared this
message.

GOLDBECK