MONGOLIA'S INCOMING PM OUTLINES NEW GOVERNMENT,

C O N F I D E N T I A L SECTION 01 OF 05 ULAANBAATAR 000637

SIPDIS

SIPDIS

STATE DEPT FOR EAP/CM AND EAP/EX
STATE PASS TO USTR

E.O. 12958: DECL: 11/07/2017
TAGS: PREL PGOV ECON SOCI MG
SUBJECT: MONGOLIA'S INCOMING PM OUTLINES NEW GOVERNMENT,
SUPPORTS STAYING IN IRAQ

REF: A. ULAANBAATAR 624

B. 619

Classified By: Ambassador Mark C. Minton for Reason 1.4 (d).


1. (C) SUMMARY: Mongolia's ruling party chief Bayar, who is
almost certain to become Prime Minister this month, indicated
in a November 6 meeting with the Ambassador that he is "fully
committed" to continuing Mongolian participation in the Iraq
Coalition. Bayar, elected Chairman of the ruling Mongolian
People's Revolutionary Party (MPRP) on October 27, said he is
negotiating the formation of a coalition government. He said
he hopes the opposition Democratic Party will join the new
government but doubts this is likely, as Parliamentary
elections are expected in June 2008. Bayar said the main
goals for his administration are to tame inflation; win
approval for major mining projects such as Oyu Tolgoi; make
the civil service less bureaucratic; and make the election
system more fair. In a separate meeting on November 6, the
Ambassador heard Democratic Party (DP) Chairman Elbegdorj
downplay the possibility of DP participation in an MPRP-led
government. Elbegdorj called MPRP talk of restructuring a
"faade" and accused Bayar of putting party interests ahead
of national interests. Elbegdorj said Mongolia needs to
fight corruption and the MPRP needs to stop resorting to
election fraud. On mining, Elbegdorj criticized the current
administration's record and said what is needed is a unified
approach in which the views of the Government, the
opposition, NGOs and others are taken into account. END
SUMMARY.


2. (C) In an hour-long meeting with the Ambassador at MPRP
headquarters, party Chairman S.Bayar made clear that he
strongly supports continued Mongolian participation in US-led
peacekeeping operations in Iraq. He said that although he
was not yet in a position to speak for the government, "We're
fully committed to continuing cooperation with your country
on this very important matter." Bayar, who could become
Prime Minister as early as next week, said Mongolians fully
understand the importance of promoting peace and democracy.
Bayar expressed support for comments that President Enkhbayar
made to POTUS at the White House on October 22, signaling the
Mongolian President's commitment to continuing Mongolian
participation in the Iraq coalition.

RULING PARTY IN TURMOIL
--------------


3. (SBU/NF) Turning to domestic politics, Bayar noted that
the formerly communist MPRP has been in turmoil since late
August, due to criticism of (and within) the party over
corruption and "not-so-wise decisions made by the party's
leadership." This was the impetus for last month's
extraordinary MPRP Congress, he explained. (Note: During the
Congress, attended by 678 delegates, Bayar won the party
chairmanship by defeating former MPRP chief and incumbent
Prime Minister Enkhbold by an 88-vote margin (reftels).
Stunned by the loss and the evaporation of his power base,

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Enkhbold submitted a letter of resignation to Parliament on
November 5. He will remain Prime Minister until a successor
is approved. Bayar confirmed that he has invited Enkhbold to
take part in the next government. Enkhbold is expected to
become Deputy Prime Minister. End Note.)

BAYAR ON COALITION GOVERNMENT
--------------


4. (C) Bayar, articulate and fluent in English, said the
process of forming a new coalition government is ongoing and
complicated, and that he expects the process to last no more
than one or two weeks. He said the MPRP is negotiating with
other parties, including the Motherland, National New and
Republican parties, the opposition Civil Will Party and the
country's biggest opposition force, the Democratic Party.
"We hope the Democratic Party will join us, but the
probability of that is quite low," he said. Bayar indicated
that although he has no plans to dramatically alter the
current Cabinet structure, he would like to reduce the number
of ministers. "Eighteen ministers is clearly too many for
us," he said without elaborating. Bayar said that with
little time left before the June 2008 Parliamentary election,
the new government will have to be realistic about what it
can achieve. For this reason, he said, he has four main
goals for the next administration:

-- Get inflation (13 percent last year) under control,
particularly the prices of basic goods.

-- Approve major mining projects, first and foremost the Rio
Tinto/Ivanhoe agreement to develop the Oyu Tolgoi copper/gold
deposit. "The situation demands it," Bayar said.

-- Make the civil service less bureaucratic. "It's a big
job, but we have to start somewhere."

-- Make the election system more fair and less corrupt, in
part by passing a new Election Law. "Elections are becoming
more and more dirty here, with big flows of cash. We should
address this, to create a responsible Parliament."

ELBEGDORJ ON MPRP AND BAYAR
--------------


5. (C) In an hour-long meeting at DP headquarters facing
Sukhbaatar Square, DP chief and former Prime Minister
T.Elbegdorj told the Ambassador that the MPRP held its
extraordinary party Congress because MPRP members knew that
change was necessary to send a message to a dissatisfied
public. He said MPRP talk of "renewal, restructuring and
democracy is just a faade" and that the ruling part is
committed to corrupt, status-quo practices. Elbegdorj,
showing no sign of a recent auto accident that claimed the
life of his driver and sent the DP chief abroad for medical
care, said the relative openness of the MPRP Congress "was
not because the MPRP opened the doors from within; Mongolian
people opened the doors from the outside." He said he has

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known Bayar since 1990, enjoys a good relationship with him
and considers the MPRP chief open-minded. But Elbegdorj
hinted that Bayar has never been a top-tier leader. "He'll
be in a challenging position. He won't be able to avoid
making mistakes." Elbegdorj also criticized Bayar for
planning to retain Enkhbold in the next Cabinet, describing
the current Prime Minister as chronically corrupt. The DP
chief also slammed Bayar for saying that his first priority
was to help the MPRP win re-election, rather than pledging to
improve the country.

ELBEGDORJ ON DP ROLE IN COALITION GOVERNMENT
--------------


6. (C) Elbegdorj said that although the DP has not yet
received any formal request from the MPRP to help form a
governing coalition, the ruling party had expressed clear
interest. Elbegdorj did not specifically rule out such
participation, but made clear that the DP has no plans to
join forces with the MPRP. If the DP were to join an
MPRP-led coalition government, he said, "There would be
problems within my party... It would be very difficult to
make a case to our supporters in June 2008." Nevertheless,
Elbegdorj said that if the next MPRP-led government gets
serious about fighting corruption, "We will support the MPRP,
even from the opposition." He also said that with support
from one or two other non-MPRP Parliamentarians, the MPRP
could form its own, single-party government. Elbegdorj also
revealed that the DP is seeking a merger with the Civil Will
Party. "We have the same values. Like I told Civil Will:
They have the good ideas and we have the national network; we
should work together." Elbegdorj said the MPRP was courting
Civil Will as well. Civil Will, said Elbegdorj, "will have a
difficult choice: Either think of the future and work with
the DP, or seize the current opportunity and work with the
MPRP."

DEMS WORRIED ABOUT ELECTION FRAUD
--------------


7. (C) Elbegdorj accused the MPRP of using its local
administrative capacity to gain an unfair edge in elections.
He said Russian experts taught the MPRP 20 such techniques,
although he did not provide any examples. The use of even
one such technique can result in the loss of up to five
percent of the vote, he said. "This is why the DP loses
local elections, despite all of our support." The DP chief
also characterized the Election Commission as partisan,
saying seven of the nine commissioners are pro-MPRP. "In a
democracy, you need to have trust in an election body. If
we're not careful, this country could become a Putin
democracy, a Lukashenko democracy." Elbegdorj also alleged
that the Government is planning to distribute roughly one
million dollars to every provincial governor. He called this
an election ploy "disguised as road and education
assistance." On the draft budget, Elbegdorj said government
expenditures would account for 47 percent of GDP. He said
most other countries at Mongolia's phase of development

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average around 20 percent.

ON MINING, ELBEGDORJ WANTS CONSENSUS...
--------------


8. (C) Their remarks on mining showed that major differences
remain between Elbegdorj and Bayar, and between their
respective parties. Elbegdorj drove home the point that
there is no Mongolian consensus on how to proceed with
mining, and revenue-sharing thereof. "When Prime Minister
Enkhbold presented the Oyu Tolgoi deal, the administration
ignored the opposition, the civil movements and everybody
else, and it failed," Elbegdorj said. "The issues are still
too fragmented to be submitted to Parliament. The
administration should hold a forum, invite everyone to
discuss the issues and build a consensus. We need a unified
position. If one doesn't exist, you've got different people
talking about different things." The DP chief added that
members of his party who have recently toured mines in
Australia and elsewhere have "had their eyes opened."

... AND BAYAR WANTS DEVELOPMENT
--------------


9. (C) Bayar, for his part, said the Oyu Tolgoi deal should
be formally approved in the first quarter of 2008, with
approval of the Tavan Tolgoi deposit not far behind. The
latter, he said, will require "solving some legal issues
involving certain personalities." Bayar said Mongolian
authorities need to show the people the benefits of mining,
adding: "All these civil movements and public demonstrations
are keeping this mining controversy alive... We need to
encourage people to work, and not to wait for handouts."
Bayar suggested that Mongolian authorities intend to consult
with leading U.S. financial companies, including JP Morgan,
Goldman Sachs and Merrill Lynch, on "how to approach these
deals." The MPRP Chairman also said President Enkhbayar was
greatly impressed by Alaska's Permanent Fund during his
recent visit there, adding that the MPRP plans to study the
implementation of a similar fund. Bayar said he agreed with
President Enkhbayar that the Government should launch a
Permanent Fund-type project at the same time that a big
mining project is approved, to "stimulate a positive public
attitude."

ENKHBAYAR TRIP HAILED
--------------


10. (C) Bayar hailed Enkhbayar's successful trip, calling it
"very good news, especially as it came during the MPRP
Congress." Bayar said Enkhbayar, who along with POTUS signed
a $285 million Millennium Challenge Compact for Mongolia, was
very impressed, partly by his two-night stay at Blair House,
and partly by the high level of President Bush's involvement
in the visit. "Symbols are important to us Mongolians, and
we're grateful our President was received in such a high and
friendly manner," Bayar said.


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COMMENT
--------------


11. (C) The latest nationwide surveys show the DP with a
two-point lead over the MPRP, 32 percent to 30 percent.
Elbegdorj appears to be betting "double or nothing"; rather
than accept a junior DP role in an MPRP-led coalition
government, he is gambling that his Democratic Party can ride
voter discontent to outright victory in the June 2008
Parliamentary elections. He may well be correct, although as
Elbegdorj concedes, the MPRP will see its public approval
rating rise as a result of the MPRP Congress and the
departure of Enkhbold as party chief. We find it ironic that
Bayar, heavily implicated in vote-buying at the MPRP
Congress, would list election-system fairness and
anti-corruption among his goals for the new administration.
We are heartened by Bayar's support for continued Mongolian
participation in the Iraq Coalition, and guardedly optimistic
about his pronouncements on prompt approval of major mining
projects. As always with the mining issue, however, the
devil is in the details, and there will be little political
incentive for the Democratic Party to help the MPRP-led
government record successes, on the Oyu Tolgoi deal or
anything else.
MINTON