MONGOLIA'S NEW CABINET: THE GOOD, THE BAD AND THE UGLY

S E C R E T SECTION 01 OF 08 ULAANBAATAR 000703

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STATE FOR EAP/CM, INR/EAP, INR/B AND DRL
STATE PASS TO DEPT OF AGRICULTURE

E.O. 12958: DECL: 12/20/2017
TAGS: PREL MARR ECON SENV KCOR SOCI PGOV MG
SUBJECT: MONGOLIA'S NEW CABINET: THE GOOD, THE BAD AND THE UGLY

REF: A. ULAANBAATAR 674

B. ULAANBAATAR 680

C. ULAANBAATAR 688

D. ULAANBAATAR 698

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


1. (S) This cable provides analysis of the new 16-member
Cabinet of Mongolian Prime Minister S.Bayar and identifies
the Ministers' strengths, weaknesses, likely objectives and
challenges. A separate cable will follow on the balance of
power in Parliament and political parties' prospects for
success in the June 2008 Parliamentary elections.


2. (S) SUMMARY AND COMMENT: Mongolian Prime Minister S.Bayar
has assembled a 16-member Cabinet that strikes a balance
between political necessity and the need to ensure that
ministries are competently led. Given the abysmal approval
rating of the ruling and dominant Mongolian People's
Revolutionary Party (MPRP),if the MPRP is to approach the
elections with any confidence, Bayar will have to look to his
Cabinet to produce tangible, public-pleasing achievements in
the coming months. We see the Cabinet as a pragmatic and
nimble group, a mixture of proven technocrats and experienced
hands. We are heartened to see S.Oyun, a frank and pro-U.S.
leader, become Foreign Minister. The Cabinet has its share
of old-school MPRP politicians, but even they could be
described as capable. We also see a Cabinet filled with
Russophiles; 14 of the 16 Cabinet Ministers either studied in
Russia, attended a Russian school in Mongolia, or have a
Russian parent. Two served as Ambassador to Russia. One
foreign businessman, long resident in Ulaanbaatar, summed up
his impression of the new Cabinet by saying, "Intelligent
conversations are being held for the first time in four
years." END SUMMARY AND COMMENT.


3. (S) Prime Minister Bayar has assembled a 16-member Cabinet
that balances political necessity and ministerial competence.
(Full unclassified bio sketches were emailed to EAP/CM.)
Bayar's coalition "National Unity" Government consists of
officials from only three parties -- Bayar's MPRP, the Civil
Will Party and the New National Party. (The key opposition
Democratic Party apparently likes its chances in the June
2008 elections and rejected Bayar's offers to join the
coalition.) Given the MPRP's abysmal approval rating of
late, if the MPRP is to approach the elections with any
confidence, Bayar will have to look to his Cabinet to produce
tangible, public-pleasing achievements in the coming months.
He has staked his Government's future on two goals:
stabilizing prices for key foodstuffs and fuel, and
concluding an investment agreement for the lucrative Oyu
Tolgoi deposit. Oyu Tolgoi, which by the GOM's calculation
holds 71 billion ounces of copper and 31 million ounces of
gold, has been a subject of impassioned and prolonged debate,
and stop-start negotiations are entering their fourth year.
As time passes without an approved investment agreement for
Oyu Tolgoi, Mongolia remains a poor and underdeveloped
country, with less than 1,000 miles of paved road, GDP per
capita of $1,036 per year (2006 est.),and nowhere near the
financial, technical, or organizational capacity needed to
develop Oyu Tolgoi or other deposits on its own. Enter the
Bayar Cabinet...


4. (S) We view the Cabinet as a pragmatic and nimble group of

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technocrats, including Health Minister Batsereeden and
Trade/Industry's Narankhuu, and experienced hands, such as
former PM M.Enkhbold (now DPM) and Fuel/Energy's Khurelbaatar
(former Finance Secretary, MCC Compact and Oyu Tolgoi
negotiator). We are heartened to see S.Oyun, a frank and
pro-U.S. leader, become Foreign Minister, and encouraged that
the Justice Ministry is now under the control of
Ts.Munkh-Orgil, a competent jurist with generally strong ties

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to the Embassy, though he has been a drag on some issues such
as trafficking in persons and corruption legislation. The
Cabinet has its share of old-school MPRP operatives - Finance
Minister Ch.Ulaan comes to mind, as does Labor's D.Demberel -
but even they could be described as capable and pragmatic.
One foreign businessman, long resident in Ulaanbaatar, summed
up his overall impression of the new Cabinet by saying,
"Intelligent conversations are being held for the first time
in four years."

RUSSOPHILES
--------------


5. (S) As might be expected for a nation that was dominated
by the Soviet Union for 70 years until the early 1990s, we
also see a Cabinet filled with Russophiles; 14 of the 16
Cabinet Ministers either studied in Russia, attended a
Russian school in Mongolia, or have a Russian parent. Two
served as Ambassador to Russia. The Russians have been very
active in engaging the new Government on economic
cooperation. This was seen in the December 7-8
Mongolian-Russian business forum, attended by delegations
from both governments and more than 200 companies, including
Russian mining firms. The forum was opened by President
Enkhbayar and attended by many Mongolian MPs, and the Russian
delegation was led by a close aide to President Putin. On
December 18, the Deputy Mayor of Moscow met in Ulaanbaatar
with PM Bayar and called for economic and other cooperation.
The Russian official agreed to Bayar's proposal that a
Russian cultural center be set up in Ulaanbaatar. The
Russian also asked for Mongolian support for Moscow to host
the 2010 Junior Olympics.

TALKING THE TALK
--------------


6. (U) Bayar delivered a pro-mining message in a December 13
speech: "Everyone sees that Oyu Tolgoi and Tavan Tolgoi
projects are both stalled. One of the Government's core
responsibilities is to resolve this stalemate position and
tap the wealth in a short period of time so that rapid
development will follow." Bayar has also pledged action
against corruption. (Note: On December 18, police allegedly
arrested National Emergency Management Agency head Gen. Dash
for suspected corruption related to trading in
disaster-relief materials. Assistants to Gen. Dash denied
that he had been arrested, saying he had merely been
questioned. It is not clear whether he is currently in
custody. End Note.)

INITIAL CABINET ACTIONS
--------------


7. (S) But what has the Cabinet actually done so far? At
one of its first meetings, on December 15, the Cabinet
reportedly reached a number of initial decisions, many

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related to stabilizing prices for basic necessities:

-- Meat: The Mongolian Government (GOM) will order, from 13
Mongolian meat producers, 7,000 tons of meat (probably mostly
mutton and beef). It was unclear when the additional supply
would reach the market; probably spring.

-- Flour, Wheat: The GOM will order (and has already signed
agreements to buy) 15,000 tons of Russian flour and 85,000
tons of Russian wheat. The GOM also decided to buy seed for
6,000 tons of wheat, which is to be distributed cheaply to
farmers.

-- Gasoline: Starting on January 15, the GOM will absorb and
offset any new price increases experienced by Mongolian
gasoline importers, in order to prevent any further gas hikes
for consumers.

50 PERCENT OF ASGAT DEPOSIT
--------------


8. (S) The Cabinet also decided that the GOM would own 50
percent of the Asgat silver and lead deposit in the western
province of Bayan Ulgii. The Cabinet agreed that it would
submit a proposal to this effect to Parliament. (Under the
2006 amended Minerals Law, Asgat was declared a strategic
deposit, which the GOM could claim 50 percent of as the
exploration of the deposit was made with state funds.)


9. (S) In a gesture toward transparency, the Cabinet agreed
that an "Open Government Day" would be held once a month at
rotating ministries. The Cabinet reiterated the ban on
government workers drinking during work hours, adding that it
would not hesitate to terminate those involved.

CABINET MINISTERS: THE GOOD, BAD AND UGLY
--------------


10. (S) Following are sketches of the 15 ministers who work
for Bayar, with information on their strengths, weaknesses,
likely objectives and challenges.

DEPUTY PRIME MINISTER: M.ENKHBOLD
--------------


11. (S) Humbled after the loss of his MPRP chairmanship and
then his job as PM, Enkhbold is nevertheless a survivor,
remaining in the GOM as the Cabinet's second-highest-ranking
official (and maintaining Parliamentary immunity from
prosecution for corruption). Enkhbold need look no further
than out any window to view the legacy of his years as UB
mayor and governor - dozens of construction projects, many on
land formerly owned by the state and reportedly sold off at
"preferential" prices. At a plenary on December 5, Enkhbold
defended himself against corruption accusations by pointing
out that no court had ever convicted him. It is unclear
whether PM Bayar will invest Enkhbold with actual power;
critics claimed that his inclusion in the Cabinet was merely
aimed at keeping Enkhbold, and by extension, the MPRP, from
looking dirty ahead of June 2008 Parliamentary elections.

CHIEF OF GOVERNMENT SECRETARIAT: N.ENKHBOLD
--------------


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12. (S) The former Foreign Minister, known for his deft touch
with the media, had a rough ride in Parliamentary approval
proceedings, at the hands of a few detractors, such as
Republican populist Jargalsaikhan. Enkhbold's key
responsibility will be to enforce Cabinet discipline,
although Bayar, with his hands-on management style, will also
work to keep the entire Cabinet united on policy matters.
Enkhbold will have the support of his boss to crack down on
bureaucratic extravagance. Enkhbold will implement cuts in
the number of vehicles available to Ministry employees and
take steps to force public servants to eschew gas-guzzling
SUVs in favor of more fuel-efficient sedans.

FOREIGN MINISTER: S.OYUN
--------------


13. (S) One of three women in the Bayar Cabinet (along with
Education's Bolormaa and Health's Batsereeden),Oyun
reluctantly entered politics nearly a decade ago after the
murder of her older brother Zorig, the leader of Mongolia's
democratic movement. (Her excellent English skills helped
the movement make itself known to foreign audiences.)
Respected by foreign diplomats and celebrated by the human
rights community, Oyun is a straight-shooting pragmatist who
believes in multilateralism and has long maintained close
ties to the Embassy. For a time, she worked for mining giant
Rio Tinto, and knows that Mongolia must develop its mineral
resources and that the international community must play a
role in this development. She was also an active member of
Mongolia's Millennium Challenge Account National Council.
Oyun was criticized for joining the Bayar Government, but she
apparently concluded that her Civil Will Party could
accomplish more inside the Government than out. She has
shown a willingness to crack down on cronyism that has
resulted in unqualified individuals being given jobs at
Mongolian diplomatic missions; she has also been a strong
opponent of corruption and was a driving force behind
Mongolia's acceptance of the UN Convention Against Corruption
in November 2005. She has also made a goal of increasing GOM
service for Mongolians overseas. Her pro-U.S. views and
commitment to human rights auger well for bilateral
cooperation and the promotion of American interests.

DEFENSE MINISTER: J.BATKHUYAG
--------------


14. (S) A 43-year-old economist with no military experience,
Batkhuyag is one of only two Cabinet ministers from the New
National Party (the other is Construction's Tsolmon).
Largely pleased with the current state of US-Mongolian
relations, he is unlikely to initiate or implement any major
policy or staffing changes. The English-speaking Batkhuyag
has so far avoided removing or reassigning any staff
officers, nor has he made any political appointments,
military or civilian. Compared with his hands-off
predecessor (who critics labeled as corrupt),Batkhuyag might
involve himself more deeply in ministry finances, including
those related to bilateral military programs. Top GOM
military decisions, including on whether to send a ninth
rotation to Iraq, will be made above Batkhuyag's level.

FINANCE MINISTER: CH.ULAAN
--------------


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15. (S) This is Ulaan's second stint as Finance Minister. An
old-school politician and MPRP operative, he is not known for
his openness to criticism. After former GOM spokesman
N.Demberel said in a February interview that Ulaan was
"merely a puppet" with "no personal opinions," Ulaan accused
him of slander. (In a decision that upset many free-speech
advocates, a UB court sided with Ulaan in August, finding
Demberel guilty and sentencing him to jail.) That said,
Ulaan is viewed as knowledgeable, dedicated and reliable. He
has told us he strongly desires engagement on the Millennium
Challenge Corp (MCC) Compact for Mongolia. The new Finance
Minister, a longtime public servant, apparently has robust
personal finances. His name is closely associated with
Tsairt Minerals, a Mongolian-Chinese joint venture operating

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the lucrative Tumrtiin Ovoo zinc mine. He is also alleged to
have benefited from links to the Customs service. Ulaan will
play a role in shaping whether the GOM recommends further
changes to Mongolia's Minerals Law, which could negatively
impact the attractiveness of Mongolia's investment climate.
He will also influence whether an investment agreement is
approved to allow wide-scale development of Oyu Tolgoi.

JUSTICE AND HOME AFFAIRS MINISTER: TS.MUNKH-ORGIL
-------------- --------------


16. (S) Formerly Chairman of the Legislative Standing
Committee (and before that, Foreign Minister),Munkh-Orgil is
closely affiliated with President N.Enkhbayar. An attorney
who studied law at Harvard, Munkh-Orgil will appoint a new
chief for the Anti Corruption Agency (whose leader died on a
recent visit to Australia). Our sources indicate that
Munkh-Orgil might become PM Bayar's point-person on the
emotionally charged issue of Chinese immigration. Many
Mongolians, including Cabinet ministers, are alarmed by what
they see as an influx of Chinese citizens. (Said one
high-level advisor: "Many Chinese are coming, and we don't
even know how many are here.") When he served as Deputy
Justice Minister, Munkh-Orgil was resistant to calls for
greater transparency, telling one EmbOff, "You're trying to
push your values on us." Nevertheless, contact between
Munkh-Orgil and the Embassy have long been close. (He heads
the Mongolian Basketball Association; the amateur team on
which he plays recently lost to our Embassy team.) Among the
legislative issues that Munkh-Orgil might weigh in on are
draft laws on state secrets and freedom of information. He
told us in August that in his view, the United States ranks
tied for 5th (with Germany) in overall importance to
Mongolia, trailing China, Russia, Korea and Japan.

TRADE AND INDUSTRY MINISTER: H.NARANKHUU
--------------


17. (S) Supporters say Narankhuu knows mining inside out,
having spent the past seven years as General Director of
Erdenet Mining Corp and worked previously as a Vice Minister.
Critics say Narankhuu was merely in the right place at the
right time; that during his time at Erdenet, the soaring
price of copper left him looking capable. Either way, it
remains to be seen how much of a say he will have in shaping
whether an Oyu Tolgoi deal is approved. A former diplomat
who served in Washington, Narankhuu's diplomatic skills will
be put to the test on the Oyu Tolgoi issue. His ability lies
in balancing competing interests. Ideally, Narankhuu will
bring a measure of sanity to the GOM's ambiguous mining

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policy, which the GOM alters at whim, based on prevailing
political or populist sentiment and on what changes can be
linked to investment practices overseas. The mining industry
- Mongolians and foreigners alike - respects Narankhuu and is
optimistic. Like Finance Minister Ulaan, Narankhuu could
play a role in influencing whether the GOM seeks changes to
the Mining Law.

LABOR AND SOCIAL WELFARE MINISTER: D.DEMBEREL
--------------


18. (S) The only member of the previous Cabinet to keep his
portfolio, Demberel was a high-ranking MPRP member back in
the party's communist heyday. He has already taken steps to
maintain the status quo. (On December 17, when reporters
asked him whether investigators would be allowed to search
the homes, offices and cars of Parliamentarians suspected of
gambling away millions of dollars in state funds, Demberel
downplayed the matter, saying the MPRP would discuss it
internally.) Demberel will move to reduce business tax loads
by 10 percent per employee salary - a key request of
Mongolian business. He might also address amendments to the
law on labor safety and hygiene, which Parliament is to
consider during the current session.

EDUCATION, CULTURE AND SCIENCE MINISTER: N.BOLORMAA
-------------- --------------


19. (S) Fond of sable and lynx coats, Bolormaa has pledged to
work for universities to be set up in remote areas. She was
almost certainly gifted her job by Bayar for having stood up
at an MPRP Congress and accused then-MPRP chief M.Enkhbold of
corruption. (In a vote that followed, Enkhbold lost the MPRP
chairmanship to Bayar, and then the Prime Ministership.)
Despite her finger-wagging in Enkhbold's direction, there is
no shortage of accusations that Bolormaa enriched herself
through work in the UB city government. Her critics point
out that as Education Minister, with power to greatly
influence which Mongolians receive scholarships, Bolormaa
will have further opportunities to feed at the public trough.
Her supporters, however, point to her four years as head of
the Mongolian Center for Children's Rights and say this will
result in greater attention being paid to children's problems
(including child abandonment and the fact that some children
do not attend school because of economic reasons).

HEALTH MINISTER: B.BATSEREEDEN
--------------


20. (S) A doctor and technocrat with much experience in
Mongolia's health sector, Batsereeden has already informed us
of her interest in working with us on the MCC Compact's
(relatively small) health component. Having already worked
at the Health Ministry for more than 18 months (as State
Secretary),she has the connections and understanding

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necessary to mobilize her Ministry for fast action. However,
PM Bayar has not identified any health issues as top
priorities. Batsereeden is expected to try to make the
health system less bureaucratic, emphasize inexpensive
prevention methods rather than expensive treatments, and
improve the quality of hospital food - a popular complaint.

AGRICULTURE MINISTER: TS.GANKHUYAG
--------------

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21. (S) Although Gankhuyag is considered "clean," the same
cannot be said for his Ministry. The lucrative,
corruption-prone portfolio has been beefed up by the
Cabinet's decision to order significant quantities of meat,
flour and wheat. Gankhuyag will have to keep his coworkers'
hands out of the cookie jar, ensure a stable and affordable
food supply and address livestock diseases. (Equine flu has
killed at least 16,000 horses.)

CONSTRUCTION MINISTER: TS.TSOLMON
--------------


22. (S) Like Bayar, Tsolmon is a former Ambassador to Russia
(and before that, Bulgaria). A Russian-educated engineer who
worked for UNESCO in the mid-1990s, Tsolmon has pledged to
improve the quality of new buildings. His portfolio is not
among the heavyweights, but presents myriad opportunities for
personal enrichment. Tsolmon will pay close attention to
Parliament's consideration of a resolution on the creation of
jobs in the construction sector. He will also have to
address the issue of recent raids on construction sites,
where many Chinese laborers were rounded up and subsequently
deported.


TRANSPORTATION MINISTER: R.RASH
--------------


23. (S) Rash formerly served as Director of the Mongolian
Railway (jointly owned with Russia). Government opponents
have pressed him on what he will do regarding rail safety,
traffic congestion, rising transport/fuel costs and
"sweetheart deals" posing as Ministry-organized tenders.
Rash said he would sharply increase rail-safety spending. He
expressed concern over the insider deals but rather than
outline any steps against this practice, he blamed the former
administration's "poor planning." Rash indicated that he
might try to get a proper tarmac established at the main
airport in Bayan Ulgii. (Note: MP Gundalai, People's Party
chief, has been calling for the establishment of an
international airport in northern Khovsgol province, and for
a moratorium on new mining projects there. End Note.)

FUEL AND ENERGY MINISTER: CH.KHURELBAATAR
--------------


24. (S) PM Bayar has made a priority of preventing further
consumer price increases for gasoline. Khurelbaatar, who has
been dogged by rumors that he enriched himself in previous
positions, has indicated that he will direct his Ministry to
review plans for an expensive hydroelectric plant on the Eg
River, which is showing signs of drying up. On rural
electrification, Khurelbaatar has said his Ministry will
distribute more than 40,000 solar panels to herder families
next year, to generate electricity. (Quoting Finance
Ministry statistics, he said that 15,000 herder families had
already received such panels.) He has expressed interest in
USAID-funded analytical technical assistance to address
energy policies.

ENVIRONMENT MINISTER: G.SHIILEGDAMBA
--------------


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25. (S) Just 32 years old, Shiilegdamba is a tourism expert
whose experience, Bayar hopes, will help Mongolia attract
more ecotourists. But first, Shiilegdamba will have to
answer domestic questions about what the GOM is doing on air
pollution, overfishing and environmental damage from
irresponsible artisanal and small-scale gold mining. On air
quality, Shiilegdamba has pledged to coordinate efforts by
national and city governments. He has also promised action
on poaching, water quality/supply and forest protection. He
has said nothing publicly about gold mining or overfishing,
but PM Bayar stated on December 12 that his Government would
address both issues head-on. The Environment portfolio may
seem rather unimportant, but the ministry gives its chop on
environmental impact assessments for a variety of business
and GOM projects (including mining ventures). This
permission is necessary for the issuance of operating
permits, providing a significant rent-seeking opportunity for
bureaucrats and ministers.
MINTON