Mongolia Scenesetter for A/S Hill

UNCLAS SECTION 01 OF 03 ULAANBAATAR 000336

SIPDIS

SENSITIVE
SIPDIS

Department for EAP A/S Hill, from Ambassador

E.O. 12958: N/A
TAGS: PREL EAID EMIN ETRD PINR MG
SUBJECT: Mongolia Scenesetter for A/S Hill

SENSITIVE BUT UNCLASSIFIED - NOT FOR INTERNET DISTRIBUTION


1. (SBU) We and the Mongolian Government very much look forward to
your visit. You will be the most senior solo State Department
visitor to Mongolia since Jim Kelly in October 2004; Kelly visited
to inaugurate the first session of the "Comprehensive, Bilateral,
Global, Regional Issues" (CBRGI) dialogue. That visit followed
President Bagabandi's July 2004 trip to the U.S., during which the
new "comprehensive partnership" description of the bilateral
relationship was coined in the presidential joint statement. You
accompanied the President and the Secretary on the historic November
2005 visit, which provided considerable momentum to the relationship
and Mongolian expectations. Your own visit likely will have as a
central theme the deliverables for President Enkhbayar's proposed
trip this October.

Mongolia's Closest Third Neighbor
--------------


2. (SBU) The United States has pride of place among Mongolia's
"third neighbors," an elastic category that also includes South
Korea, Japan, and Europe. The third neighbor concept is Mongolia's
effort to escape from its distinct geopolitical disadvantage of
being a landlocked state wedged between the twin giants of Russia
and China. Mongolia is careful to remain on cordial terms with both
its real neighbors, but historical wariness about Chinese domination
is not far below the surface, and there is some resentment about the
rapid Russian pullout in the early 1990s which led to a sharp
depression, resentment which has bubbled to the surface more now
that the Russians have made a heavy handed reappearance trying to
gain special access to Mongolia's mineral deposits. U.S. wariness
about the Shanghai Cooperation Organization is more than matched by
Mongolia's own cautiousness. Mongolia only decided to become an
observer in the organization because it wishes to be ready to take
part in any regional economic integration activities. Mongolia aims
to build relationships as widely as it can -- one reason it is
hosting an Organization for Security and Cooperation in Europe
(OSCE) meeting June 11-12, and why it hopes for U.S. support to join
APEC and NATO's Partnership for Peace.

8th Rotation: Time for a Decision
--------------


3. (SBU) Your visit is well-timed to urge a decision on an 8th
rotation of Mongolian soldiers to Iraq. The troops for the next
rotation have finished training, and a formal decision needs to be
made soon if they are to have any chance of getting to Iraq by July
1, the date the three-month extension of the 7th rotation ends.
According to the President's Foreign Policy Advisor (FPA),
Tsogtbaatar, the Ambassador's June 6 meeting with President

SIPDIS
Enkhbayar was helpful in moving the discussion on the next rotation
forward within the Mongolian government. There reputedly has been
an "Alphonse and Gaston" dynamic within the government, with the
President viewing it as an issue for the Prime Minister and the
Cabinet to make a decision, and Prime Minister Enkhbold not wanting
to make the decision (for fear of shouldering the blame by himself
if troops are injured during the rotation). As reportedly happened
for the extension of the 7th rotation, Enkhbayar likely will blink
and ask the National Security Council (President, Speaker and Prime
Minister) to recommend to the Cabinet that an 8th rotation be sent.
(Note: You may expect increased sensitivity to casualties as there
has been a recent surge in attacks against Camp Echo, where the
Mongolians provide perimeter defense, with attacks on June 8 (2
rockets),9 (18 rockets, 2 landing inside the base),and 11 (43
mortar rounds, 13 landing inside the base),but fortunately none
were killed or wounded.)


4. (SBU) The initial deployments to Iraq and Afghanistan were made
when Enkhbayar was Prime Minister in 2003, and he remains a strong
supporter of these and other PKO deployments. The ongoing shift of
Mongolia's military to focus on international peacekeeping has
helped raise Mongolia's political profile with a range of nations --
and has helped bring the Mongolian military much-need cash. Some
250 Mongolian troops have guarded the UN war crimes tribunal in
Sierra Leone since late 2005, and two Mongolian detachments have
also served under Belgian command in Kosovo. For the second year in
a row, Mongolia will host the U.S.-supported multinational
peacekeeping training exercise this August; Admiral Keating has
already said he'll come for the closing of the "Khaan Quest 2007"
exercise.


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For the President, Signing MCA Compact is Key
--------------


5. (SBU) Early this year, President Enkhbayar won the wrestling
match with PM Enkhbold as to who would sign the Millennium Challenge
Account Compact agreement. Signing the Compact appears to be an
essential element of his proposed visit to the U.S. -- enough so
that the President's schedulers may get antsy if it appears that the
Compact will not be ready for signing during whatever date is set in
October by the White House. Since MCC expects to fund the compact
with FY 2008 money, a delay might come if Congress does not pass the
budget on time. The substantive work on the roughly $175 million
compact itself -- focusing on expanding rail capacity, preventive
health, vocational education, and property rights -- is drawing to a
close. The smooth, harmonious pace of recent months is a welcome
change from two and a half years of inconclusive discussions, which
had led to frustration, bitterness, and some finger-pointing on both
sides.

MFA Hopes for a "Comprehensive Partnership" Agreement
-------------- --------------


6. (SBU) For its part, MFA appears to have its heart set on
President Enkhbayar also signing during his U.S. visit its proposed
"Comprehensive Partnership Framework Agreement (CPFA)," a draft text
of which MFA gave to DAS Christensen when he came here in late
January for the annual CBRGI talks. MFA probably hopes to use such
a U.S.-Mongolia document as an example to duplicate with other third
neighbors. Enkhbayar himself dutifully raises the CPFA, but we
don't sense a personal attachment to it. MFA appears quite miffed
that we have reservations about the desirability and feasibility of
a document which -- ignoring problematic points like endorsement of
a bilateral FTA -- is at once meant to be mostly hortatory, while
also being legally binding. Our own belief is that we should mark
the warm bilateral relationship via a good presidential Joint
Statement, a political statement to meet a political need. For your
meetings here, we suggest simply saying that we also look forward to
issuing a good statement on the warm bilateral relationship during
President Enkhbayar's visit to the U.S. and that, in consultation
with our National Security Council staff, we intend to work closely
with MFA as the visit draws closer.

Eager to Talk About North Korea
--------------


7. (SBU) Mongolian officials tell us that Kim Young Nam, President
of the Presidium of the Supreme People's Assembly, will likely visit
Mongolia in the latter part of July. The Mongolians will be deeply
interested in your brief on the Six Party Talks and North Korea.
They retain warm feelings toward their former Socialist fraternal
nation, and even (rather improbably) see themselves as a model for
the DPRK of how political and economic transformation can turn out
alright and without bloodshed. Economic ties, through bilateral
trade and remittances from Mongolian workers, are much stronger with
South Korea than with the DPRK. However, Mongolian also hopes a
North Korea which acts more normally will help speed regional
economic growth. President Enkhbayar visited South Korea from May
28-30, and one focus was the hope that freight from South Korea
would go via Mongolia to Europe, which first requires that a rail
link through North Korea be open. While desirous of keeping alive
its links to North Korea, the GOM says the right things, and
deserves praise for its willingness to quietly allow North Korean
refugees to transit Mongolia en route to resettlement elsewhere and
for giving the North tough love messages on nuclear weapons and
missile launches.

Economics: Things Are Looking Good
--------------


8. (SBU) Mongolia's economy has boomed since 2004, with growth
rates from 7-10%. Increased mining operations and high minerals
prices have been part of the reason, but favorable weather has
helped herders and services like tourism have also grown strongly.
Nevertheless, while some Mongolians are doing very well, about a
third of the population remain below the poverty line. Mongolia's
politicians have been blessed with rapidly rising government
revenues, which they have begun to fling at voters in the form of
cash handouts to every child and to newlywed couples, as well as a
trebling of infrastructure spending this year.


9. (SBU) Some of those increased revenues came from a confiscatory

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Windfall Profits Tax law on copper and gold sales abruptly passed
last year, a measure which spooked foreign mining investors. Adding
to the discomfort was a new law which allows the government to take
an equity share of 34-50% in mines on "strategic deposits."
However, Rio Tinto and the Canadian company Ivanhoe have struck a
deal this year on the Oyu Tolgoi copper mine, which has raised hopes
that deals can still be done. The U.S. has a key interest in the
issue, since the mining sector is a major factor for Mongolia's
future -- and provides the major prospects for either new U.S.
investment, through companies like Peabody coal or Phelps Dodge, or
exports, like those of Caterpillar.

Politics: Looking Toward the 2008 Election
--------------


10. (SBU) In a little more than a year, the next parliamentary
elections will take place. This thought is never far from the mind
of Mongolian politicians, as is the reality that the outcome may
well be similar to the hung parliament which resulted from the June
2004 elections. Meanwhile, the Democratic Party, Mongolia's
fractious major opposition party, has had fun and a good deal of
success in recent months in helping to widen and make more visible
the divisions in the current coalition government. The latest near
victim was Speaker Nyamdorj, who survived a no confidence vote on
June 7, but was embarrassed by the fact that at least 11 government
MPs voted against him, including at least 5 from his own MPRP. The
Democrats dispute the outcome of the vote, and are currently
boycotting the State Great Hural. The Democrats earlier
successfully split off enough government MPs to oust an MPRP
minister and a minor party minister.


11. (SBU) The MPRP, which is languishing in opinion polls, doesn't
seem to gain much public credit for the large new social welfare
programs or sharply increased civil service salaries. Corruption
scandals and the visibility in recent months of the feuds within the
coalition government and MPRP haven't helped. Odds are the
government will hang on until the next election, but Prime Minister
Enkhbold looks to be the fall guy if, as seems likely, the MPRP
fares poorly in June 2008. President Enkhbayar, who anointed
Enkhbold as his successor as MPRP chairman, is dismayed at the
MPRP's slump in the polls, and by all accounts (including his own)
unhappy with the PM. Enkhbayar also has an election to think about:
he is eligible to run for a second term in May 2009 but, under the
Constitution, must be nominated by a political party with seats in
parliament, i.e., by the MPRP. While Enkhbayar had to resign his
party membership before becoming president, that makes him a very
interested spectator of the MPRP's travails. Enkhbayar's own
popularity, however, has remained relatively high. All this creates
a very active domestic political scene, but one in which foreign
policy is not a subject of dispute. Mongolian politicians of all
stripes agree on the wisdom of the third neighbor policy and close
relations with the U.S.

Minton



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