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06ULAANBAATAR657 2006-08-31 09:47:00 CONFIDENTIAL Embassy Ulaanbaatar
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DE RUEHUM #0657/01 2430947
R 310947Z AUG 06
					  C O N F I D E N T I A L ULAANBAATAR 000657 




E.O. 12958: DECL: 09/01/2016

Classified By: Ambassador Pamela J. Slutz; Reasons 1.5(B) and (D)

1. (U) As I conclude my three-year tour as chief of mission
in Mongolia, I offer the following reflections on the past
and recommendations for the future, as we pursue the
"comprehensive partnership" with Mongolia that was first
enunciated in the July 2004, and reaffirmed in the November
2005, Joint Presidential Statements.

U.S. Interests vis-a-vis Mongolia


2. (U) To paraphrase a portion of the 2004 US-Mongolia Joint
Presidential Statement: It is in the national interests of
the U.S. that Mongolia be a democratic, prosperous, and
secure "partner" which promotes friendly relations with its
immediate neighbors; is an active participant in regional and
international economic, political, and security forums; and
supports U.S. global policy objectives.

3. (C) Mongolia is not of strategic importance to the U.S.,
at least not in the conventional defense and security
context. Mongolia is too geo-politically, economically, and
demographically challenged (i.e., landlocked between Russia
and China, far from U.S. markets, and sparsely populated) to
be a strategic partner. And, Mongolia cannot afford to
estrange its immediate neighbors, Russia and China, by
becoming associated with U.S. military/security objectives
vis-a-vis either of these countries.

4. (C) Rather, Mongolia's value to the U.S. lies in it
becoming a base of democracy in an otherwise unfriendly
region. Mongolia's transformation into a democracy and
market economy has been largely peaceful, free and fair -- in
contrast to other post-communist countries in Central and
East Asia as well as to some so-called democracies in
Southeast Asia. Indeed, during the height of the ideological
confrontation between "Asian values" and "Western values" in
the 1990s, Mongolia joined the debate by rebuking Malaysian
Prime Minister Mahathir during a 1997 visit to Mongolia and
heralding itself as the prime example of where Asian and
Western values (of democracy) are one and the same. For the
past year, Mongolia has been both the president of the
International Conference on New and Restored Democracies
(ICNRD) and a member of the Community of Democracies
Convening Group.

5. (C) With continued encouragement and technical/financial
assistance from the U.S. and other democracies, Mongolia
could play an important role in promoting freedom and (true)
democracy around the world. Our assistance, since 2000, to
help Mongolia develop an international peacekeeping
capability is a case in point. Peacekeeping permits Mongolia
to modernize its 7,000-man armed forces and bring them up to
international inter-operability standards. It also enables
Mongolia to develop a modest national security force that is
non-threatening to its neighbors yet capable of securing
Mongolia's borders against terrorism and transnational crime.
As a direct result of our assistance, Mongolian soldiers
today serve not just in Iraq and Afghanistan, but have begun
to venture on peacekeeping missions elsewhere, including
Sierra Leone and Kosovo. As we help Mongolia build its
peacekeeping strength from a battalion to a brigade in the
next few years, Mongolia will become a familiar and stalwart
presence in more world hotspots.

6. (C) With a better (western) educated populace, wider
integration into regional and global organizations, and
greater confidence in building and managing bilateral and
multi-lateral relationships beyond its traditional immediate
neighbors, Mongolia could, in many respects, become the
Poland of Northeast Asia. Mongolia shares many of our values
and strategic interests (i.e., denuclearization of the Korean
Peninsula). Mongolia has provided a friendly, cooperative
environment for monitoring developments in China, North
Korea, and the Russian Far East; and for facilitating the
transit of North Korean refugee-migrants from North Korea via
China to South Korea. Mongolia has already initiated the
process of integration with important regional and global
organizations -- ARF member, OSCE Partner, SCO observer --
and needs only to become a member of the Northeast Asia
Cooperation Dialogue (NEACD), APEC, and the NATO Partnership
for Peace to achieve its goal of being fully integrated into
the trans-Eurasian community, stretching from the Pacific
Ocean to Western Europe.

Mongolian Interests vis-a-vis the U.S.


7. (C) For Mongolia, the U.S. is not only a source of
tangible and moral support for Mongolia's transformation from
authoritarian communism to a market-oriented, democracy.
More importantly, the "comprehensive partnership" with the
U.S. strengthens Mongolia's sense of security and confidence
vis-a-vis its historically aggressive and hegemonistic
immediate neighbors, Russia and China. Mongolia has been
independent since 1924, but not sovereign over its own
territory until the first democratic elections were held in
July 1990 (and the last Russian soldier departed at the end
of 1992). Maintaining that sovereignty, in the face of
political and economic pressure from its former colonial
powers, Russia and China, is the real challenge facing
Mongolia today. As one former Mongolian Prime Minister put
it succinctly: "We decided on the democratic, market economy
path in large part to distance and free ourselves from our
two immediate and hegemonistic neighbors. Democracy is how
we maintain our sovereignty. Only by developing and
integrating ourselves with other democracies and market
economies, particularly with our "third neighbors" such as
the U.S., Japan, South Korea, and Germany and with regional
organizations, can we develop our people and guarantee our

8. (C) Mongolia will need -- and deserves -- not only our
moral support but also long-term tangible technical and
financial assistance, trade and investment to enable it to
develop and prosper. and to deal effectively with its two
large neighbors. As President Bush said in Ulaanbaatar last
November, the United States is proud to be a "third neighbor"
of Mongolia. The third neighbor policy was developed by
Mongolia in the early 1990s to reach out to democratic,
market-oriented countries beyond its immediate two neighbors.
Mongolia cultivates other third neighbors -- among them,
Japan, Germany, South Korea and Turkey -- but we are the only
superpower, with all that status entails.

9. (C) Both China and Russia regard Mongolia as their
"backyard," and both vie for influence with each other -- and
with "third neighbors." Mongolia's refusal thus far to
upgrade its status from observer to member of the Shanghai
Cooperation Organization (SCO) is one indication of
Mongolia's cautious, balancing approach to managing relations
with its immediate and third neighbors. Mongolians retain a
visceral dislike and distrust of the Chinese (to include
sinicized ethnic Mongols in Inner Mongolia); this is
expressed in legal restrictions and quotas on the number of
Chinese permanent residents in Mongolia. The current PRC
ambassador, one of the "new" young and sophisticated types
that the PRC has assigned throughout Asia, frequently
complains that, despite his government's outreach to the
people and government, he has made no headway against deeply
held prejudices against his country. Few Mongolians study in
China (despite offers of scholarships) and Chinese is not
offered as a foreign language in schools. And, while China
is salivating over Mongolia's rich mineral resources, the
Mongolians have put an unwritten cap on Chinese investment in
the mining and energy sector.

10. (C) The Russians, in contrast, enjoy much higher
popularity ratings among Mongolians. There is appreciation
for their help in gaining Mongolia's independence from China
and for the economic, social and financial assistance
provided by the Soviet Union for nearly 70 years. At the
same time, however, the Russians are unwelcome and deprecated
for their abrupt abandonment of Mongolia in the early 1990s.
Russia's demand for repayment of $11.4 billion in loans
provided to Mongolia since the early 1970s bedeviled
relations until the end of 2003, when Russia accepted a $250
million cash payment in settlement -- a 98% discount. In the
past year, the Russians have begun to pay more attention to
Mongolia, perhaps in part because of competition with China
(and the U.S.) for influence and natural resources in
Mongolia. However, Mongolia has made clear that Russians
will have to get in line; they will enjoy no special
preference and will have to compete with other foreign
investors for mining, energy, and transportation project

Building on a Solid Foundation


11. (SBU) Next January, the U.S. and Mongolia will celebrate
the twentieth anniversary of the establishment of diplomatic
relations. Over the past twenty years -- and particularly
since 1990 -- a solid foundation has been built. Yet, much
remains to be done. Let me describe five such steps.

12. (SBU) First, we need to resolve with Mongolia the form
and content of an agreement describing our bilateral
relations. Mongolia has proposed that we formalize the
"comprehensive partnership" agreed to in the July 2004 Joint
Presidential Statement. In February, 2006 the U.S. presented
Mongolia with the draft of a non-binding Declaration of
Principles for Closer Cooperation. Mongolia agreed with the
content of the draft declaration, but is holding out for a
formally negotiated "comprehensive partnership agreement"
(modeled on the U.S.-Singapore Strategic Partnership
Agreement) that would commit the two sides to negotiate
separate agreements in a number of areas, first and foremost
on Mongolia's list -- a Free Trade Agreement. I fully concur
with the USG position taken in February that the Singapore
model is not appropriate. Instead, we should offer to sign
the non-binding Declaration of Principles and to negotiate a
series of stand-alone MOUs or agreements to cover the
multifaceted elements we envision including in the
partnership. We have already started the ball rolling. In
April, we proposed concluding an agreement on cultural
preservation that will enable the U.S. to retrieve and return
to Mongolia priceless religious and cultural artifacts and
dinosaur fossils that are being smuggled illegally out of
Mongolia in growing numbers for sale to western (including
U.S.) buyers.

13. (SBU) Second, more agencies, especially at the Under
Secretary level and above, need to visit Mongolia. The past

two years has witnessed a positive upswing in our bilateral
relationship, leading with the exchange of presidential
visits in 2004 and 2005. I sincerely hope that we can
sustain the pace of such exchanges, particularly on the
civilian side. We see many more visitors coming here from
DOD than any other USG agency; that ratio does not, to my
mind, reflect the true nature of our relationship and of U.S.
interests in Mongolia. Our work plan for the bilateral
relationship should seek to fully reflect our diverse ties
with Mongolia.

14. (SBU) Third, we should continue to help Mongolia spread
its wings internationally; we will generally find them a
like-minded friend. Our support for Mongolia's inclusion in
the Convening Group of the Community of Democracies was a
good example. We should actively support Mongolia's
participation in the track two Northeast Asia Cooperation
Dialogue at the earliest opportunity. In 2008, Mongolia
faces an uphill battle against Iran to represent Asia on the
UN Security Council. We should begin to strategize with
Mongolia about how to win this battle.

15. (SBU) Fourth, the U.S. needs to engage more actively in
public diplomacy, cultural and educational exchanges,
including providing more paid opportunities for study and
training in the U.S. This will require new resources -- but
much less than in countries where we are trying to turn
skeptics into friends. Here, we will be acting to safeguard
and expand our influence. While not "pro-U.S.," the average
Mongolian has a genuinely and generally positive view of
Americans and the United States. However, there is a lot of
ignorance about the U.S. We need to be sensitive to a
lingering suspicion of the U.S., as well as of democracy and
a market economy, among the political elite. We would do
well not to take the Mongolian people's support for granted.

16. (SBU) Our target audience should be the two-thirds of the
population which is under the age of 30, and women and the
Kazakh (Moslem) minority in particular. Women constitute
three-quarters of the university enrollment and the same
proportion of professionals (lawyers, judges, doctors,
teachers, civil servants) but are under-represented in
national and local decision-making. Through our alliance
with the multi-partisan National Forum for Women in Politics
and Governance we are helping to train women to run for
elected office in 2008.

17. (SBU) More and more Mongolians want to study in the
United States. In recognition of the importance of western
(American) education, in 2005 the Government declared English
to be the second national language and English is now
mandatory from grade five. If we are to build our base of
influence here, we need to seize the opportunity to educate
as many of the next generation as possible, either in
Mongolia (e.g., through the Peace Corps and our new ESL
Micro-Scholarship program) or in the United States (e.g.,
more Fulbright, Humphrey, Eisenhower fellowships). We
doubled our Fulbright fellowships this year (from 3 to 6) and
I would hope that we can sustain, if not increase, this
number. This year we had a bumper crop of new Peace Corps
Volunteers (55) and expect next year's group to number around
60, bringing the total in Mongolia to 115 or so.

18. (SBU) We have very good relations with younger,
western-educated politicians likely to come to positions of
power and authority in coming years, including many young
women. But we should seek to expand and deepen our influence
with this next generation through more IVP grants, study
tours, internships with private companies and USG agencies,
mid-career professional training, and congressional exchanges
and fellowships. Were I to have $100 million to invest in
Mongolia's future, I would put it in an interest-bearing bank
account and use the interest to send qualified students and
mid-level professionals to the United States for as long as
it takes to develop a cadre of western-educated technocrats
and western-oriented politicians.

19. (C) Last, but not least, we should work with Mongolia to
get its house in order so that is a more effective partner.
Mongolia's transformation into a democracy and market economy
is far from complete; democratic behavior and norms have yet
to be institutionalized. We will need to use what leverage
we have -- such as the prospect of an MCA Compact early next
year and a Free Trade Agreement sometime in the future -- to
encourage Mongolia to continue economic and political reform.
Mongolia is currently eligible for MCA, but still falls
short in many areas: lack of a well-articulated national
development strategy; a pervasive lack of transparency in
government transactions; corruption, including widespread
disregard for conflict of interest among elected and
appointed officials; a combination of populism and lingering
attachment to the state's role in the economy which are
detrimental to the development of a friendly environment for
foreign and domestic investment; police abuse of suspects and
jail inmates; and an abysmal percentage of women among
elected and civil servant decision makers.

20. (C) In addition, the fact that Mongolia allowed its
program agreement with the IMF to lapse entirely in July 2005
should give us pause. According to some senior Mongolian
officials at the time, the prospect of an MCA windfall
encouraged the government to "throw off the burdensome
conditions" imposed by the IMF. To date, Mongolia has shown
no interest in negotiating a new program with the IMF and,
worse, has resisted USG and IMF calls for fundamental reforms
in the banking, budgetary, monetary and financial regulatory

21. (C) Mongolia recently passed anti-money laundering
legislation and the first of many anti-corruption laws.
Passing legislation is the easy part; effective
implementation may prove much more difficult. In addition,
Mongolia has not adequately addressed our concerns about
trafficking in people, concerns which first put Mongolia on
the Tier Two list in 2005. When parliament reconvenes in
October, we should continue to press for the additional
anti-corruption legislation necessary to bring Mongolia into
compliance with its obligations under the UN Convention
Against Corruption; for anti-terrorist financing legislation;
and for accession to the Palermo Protocol.

22. (SBU) We should be willing to add resources where and
when necessary to help Mongolia get its house in order. This
should include restoring the annual USAID budget for Mongolia
to $10 million. Dollar for dollar, the Mongolia program is
among USAID,s most effective -- and cost efficient --
assistance programs. USAID,s engagement here, in private
sector-led growth and good governance, is responsible for
laying the foundation that enabled Mongolia to qualify for
MCA. And USAID,s continued investment in and attention to
the private sector and good governance will help make it
possible for Mongolia to continue to re-qualify, even after
it signs a Compact. We should also begin in the next year to
provide a new and substantial level of technical assistance
to train Mongolia's law enforcement personnel so that they
can support our global efforts to combat trafficking in
people, drugs, counterfeit currency, and terrorism. The
police and other law enforcement personnel remain, in my
mind, the "weak link" in Mongolia's democratic transition.

23. (C) As we proceed, we should keep in mind that Mongolia
currently lacks the capacity to design and implement the
policies and programs necessary to achieve sustainable
economic growth. Specifically, Mongolia lacks
western-educated, apolitical, well-paid, private and public
sector professionals who are able to grasp the principles of
and implement private sector-led growth and rule of law, the
two determinants of sustainable economic growth. This lack
of capable manpower is probably the single, largest obstacle
to Mongolia's ability to move forward. The bulk of the
current political leaders and senior bureaucrats are of a
generation that was educated in the former Soviet Union and
steeped in socialist doctrine, government by fiat, and
central planning. On top of this, the social fabric of a
small, inter-related populace abhors competition with its
winners and losers and encourages a lowest-common denominator
consensus approach to decision-making. Not surprisingly,
both these factors have contributed heavily to the current
frustration (on both sides) over the slow progress of
developing an MCA Compact proposal.

Moving On


24. (SBU) As I prepare to leave Mongolia, it is with immense
gratitude for the professional (and personal) opportunity to
represent the American people here as well as for the support
of a small but capable Country Team and two consecutive
exceptional Mongolia desk officers in EAP/CM. Not to
denigrate their contribution, I would urge that, at the
appropriate time, the Department give serious consideration
to transferring the Mongolia desk officer to the Office of
Korean Affairs. This would more accurately reflect the
Mongolian's own strong ethnic and cultural ties to Koreans
and our desire to have Mongolia play an active, constructive,
and democratic role in Northeast Asia and vis--vis the
Korean Peninsula in particular.

25. (SBU) Our relationship with Mongolia is largely a success
story. In a world filled with far more complicated and
pressing problems, it therefore runs the risk of being
neglected. I am confident that with a modest amount of
attention and resources our relationship with Mongolia will
continue to be a success story for many years and ambassadors
to come.