AMBASSADOR'S INTRODUCTORY CALL ON FINANCE MINISTER

UNCLAS SECTION 01 OF 02 ULAANBAATAR 000783 SIPDIS SENSITIVE SIPDIS STATE FOR EAP/CM AND EB/IFD TREASURY FOR T.T.YANG; PASS USEDS TO WORLD BANK AND IMF MCC FOR MONGOLIA COUNTRY DIRECTOR J. HALLMARK MANILA FOR USED TO ADB E.O. 12958: N/A TAGS: EFIN PREL EAID KCOR KMCA MG SUBJECT: AMBASSADOR'S INTRODUCTORY CALL ON FINANCE MINISTER BAYARTSAIKHAN SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION. 1.(SBU) SUMMARY: During his October 16 courtesy call, the Ambassador complimented Mongolia's recent economic and financial legislation covering tax reforms, anti-money-laundering, and anti-corruption. Both he and Minister Bayatersaikhan were hopeful that Mongolia's Millennium Challenge compact could be concluded in spring 2007, and both saw the compact as a vehicle for significantly expanding U.S.-Mongolia cooperation and interaction. They exchanged views on corruption and civil service reform. END SUMMARY. ¶2. (U) The Ambassador, accompanied by DCM (notetaker) and interpreter, called October 16 on Minister of Finance Nadmidiin Bayartsaikhan. Finance Ministry State Secretary Khurlbaatar, Advisor to the Minister Hongkor, and his interpreter also attended the cordial half hour meeting. ¶3. (SBU) The Ambassador expressed appreciation for the Minister's reaffirmation, at the October 9-10 donor technical meeting (septel),of Mongolia's commitment to market economics and reform. He also expressed appreciation for passage by the State Great Hural (parliament) of anti-money-laundering (AML),anti-corruption, and tax reform legislation. The Ambassador also noted the importance of State Secretary Khurlbaatar's leadership of Mongolia's Millennium Challenge Account (MCA) National Council. And he recalled that the Treasury Department was considering providing technical assistance through a resident advisor in the Ministry's Budget Office. ¶4. (SBU) Minister Bayartsaikhan welcomed the Ambassador and noted his Ministry's close cooperation with USAID and the USAID-funded Economic Policy Reform and Competitiveness project, which provided useful policy analysis, particularly regarding tax reform. The Ministry would also be active fleshing out AML regulations and implementing them. He also expressed thanks for the U.S. Embassy's participation in the recent donor technical meeting and support for Mongolia's policies. He said Mongolians eagerly await a Millennium Challenge compact and he personally sees the compact as a vehicle to expand Mongolia-U.S. economic and commercial interactions. He also hoped U.S. investors, along with Japanese, Korean, and EU investors, would help balance out investment interest from Russia and China. The Ambassador responded that the U.S. was also interested in the successful conclusion of the MCA compact and he promised the Embassy's support in helping nudge the process along. The Ambassador also noted that the Finance Ministry was responsible for leading the mining stabilization and investment agreement process, a step critical to Mongolia's development of its mineral resources and it economic future. U.S. technical assistance to the Ministry could improve cooperation and coordination on a wide range of issues, including such as AML, counter-terrorism finance, and counterfeiting. The Minister welcomed the prospect of increased cooperation presented by a Treasury technical advisor. ¶5. (SBU) The Minister noted the DCM (then Charge') had expressed concern at the donor technical meeting about the uneven, untransparent implementation of tax and customs regulations, coupled with bribery and corruption concerns. (NOTE: During a particularly positive portrayal of Mongolia's business climate, DCM had noted that U.S., international, and Mongolian businesses had observed a serious up-tick in unwarranted, non-transparent tax audits coupled with offers to "solve their tax problems" with a bribe of 10% of the total tax bill.) The Minister said that, as both Customs and the Tax Authority fall under the Ministry's purview, he took such charges seriously. Civil service salaries needed to be increased, as the average salary was barely US$100 per month and hardly sufficient to live on. The Ministry was also working with the Asian Development Bank and World Bank on improving operations and governance with project of US$5 and US$4 million, ULAANBAATA 00000783 002 OF 002 respectively. After reviewing the U.S.' own experiences regarding corruption and civil service reform, the Ambassador replied that improving systems -- practical arrangements -- along with strong and vocal leadership would be needed to fight corruption. MINTON