AMBASSADOR'S MEETING WITH PRIME MINISTER BAYAR

C O N F I D E N T I A L ULAANBAATAR 000073


STATE FOR EAP/CM; STATE PLEASE PASS TO USDA AND USTR

E.O. 12958: DECL: 03/11/2019
TAGS: PGOV PREL EMIN MARR RS MG
SUBJECT: AMBASSADOR'S MEETING WITH PRIME MINISTER BAYAR

REF: A. A) UB 72

B. B) UB 71

Classified By: DCM NICHOLAS M. HILL for reasons 1.4b and d

Summary
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1. (C) A range of issues came up during a two-hour lunch
meeting between Prime Minister Bayar and the Ambassador March
10, including plans for a Mongolian deployment in
Afghanistan, the recently concluded deal Mongolia worked out
with the IMF, and also the political machinations involved in
reaching an investment agreement with Rio Tinto over the Oyu
Tolgoi copper mines. The Prime Minister also elaborated on a
long-term goal he has to push through constitutional reforms
after the Presidential elections in May. Regarding
Mongolia's commitments on its Millennium Challenge Compact
with the United States, Bayar acknowledged that follow up was
proving difficult on the rail project, particularly in
soothing sensitivities with the Russians who own 50 percent
of UBTZ, Mongolia's railroad company. The Prime Minister
expects to engage the Russians on MCC later this month when
he visits Moscow, part of a trip that will take him to
France, Germany, and Belgium. End summary.

Afghanistan Deployment
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2. (C) The Prime Minister confirmed that Mongolia was ready
to deploy more troops to Afghanistan. The subject was
getting continued high-level attention, including in
Mongolia's National Security Council (NSC). He noted to the
Ambassador that Defense Minister Bold was a big advocate of
sending more troops to Afghanistan and the ministry had
entertained various offers, including providing force
protection for either a German or Polish contingent. The
Ambassador expressed appreciation for Mongolia's past
engagement in Afghanistan and its willingness to return. He
noted that Washington had no official preference concerning
which mission Mongolia should take on, but that it was
extremely important to engage. The Prime Minister elaborated
on some of the complexities that Mongolia would face in
coming to a decision and agreed a pre-deployment visit to
Afghanistan, as the Defense Minister had earlier suggested,
would be useful. Bayar indicated he would probably hear more
on the subject when he visits Berlin next week.

IMF Mission
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3. (C) The Ambassador congratulated the Prime Minister on the
recently concluded agreement with the International Monetary
Fund (IMF). The Prime Minister noted that the agreement,
which followed the visit of an IMF team to Ulaanbaatar last
week, involved some difficult decisions for Mongolia. (For
more on the IMF agreement see reftels.) He said that pushing
budget cuts through the parliament would be difficult and
politically charged but ultimately the parties understood the
urgency of the matter. The Prime Minister said he hoped
revisions to the budget could be completed this week -- the
government's two key goals would be to restore some "fiscal
stability" while also maintaining social stability. The
Ambassador underscored U.S. support for Mongolia as it
grapples with the difficult economic situation and said that
in Washington we were working out how best to be responsive
to Mongolia's needs.

Investment Agreement a High Priority
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4. (C) Almost at the same time as the IMF visit, the
government has been working to pass an investment agreement
concluded with Rio Tinto over the Oyu Tolgoi copper and gold
mines, a deal that has demanded major amounts of the Prime
Minister's time and energy. Bayar told the Ambassador that
passing the Oyu Tolgoi deal was a critical priority of his
government. He had continued to be personally involved in
making sure that it moves forward. He had faced much
criticism over the deal but he generally maintained a
"positive attitude" under the circumstances. The day before,
the PM indicated, he had been engaged in extensive
consultations with the various factions which had formed in
parliament over the deal -- if approved it could be worth
several billion dollars in the next several years and over
$125 million in the near term.

Presidential Elections/Constitutional Reform
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5. (C) Instead of discussing the dynamics of the current
campaign for the presidential election May 24, the Prime
Minister described his longer term aspirations of bringing
about constitutional reform in Mongolia. Much needed fixing,
he said. He predicted that Enkhbayar would likely remain
president for a second -- and, constitutionally, last --
term. This in turn would open a good window to reform the
constitution to eliminate the direct, popular vote for
president. Bayar had no fixed sense of how reform would
unfold, but he favored moving to a parliamentary system with
a weaker figurehead presidency selected by parliament.
Mongolians have too many elections, he told the Ambassador.
He also pointed to the need to refine parliamentary rules to
improve the government's ability to enforce party discipline.


6. (C) Constitutional reform would be a complex undertaking,
Bayar continued. He said he planned to move carefully in
what would be a consensus-building process, adding that
reform should also extend to the judiciary and legal system,
including how prosecutors are selected. Bayar said that
Mongolia has too many local jurisdictions, or aimags.
Instead of 21, the country would be better off with six or
eight. "Everyone agrees that the existing system is not
good," he said. The courts are not independent enough, there
is too much political influence. The Prime Minister told the
Ambassador he would like to bring in outside help, including
possibly inviting the Asia Foundation to play an important
role, taking advantage of the experience the NGO has had in
other emerging democracies. The important point, Bayar
concluded, would be to make people in power responsible and
accountable.

Millennium Challenge Compact
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7. (C) The Ambassador closed the lunch with the Prime
Minister by raising concerns we have about the progress of
MCC implementation, in particular some delays in implementing
the rail road and land registry projects. The Ambassador
noted that the rail project, accounting for two-thirds of the
$285 million U.S. Millennium Challenge Compact in Mongolia,
is facing obstacles. The Russian CFO of the joint
Mongolian-Russian owned public rail entity, Ulaanbaatar
Railroad Co. (UBTZ),is blocking progress on an audit
required under the terms of the compact. The Prime Minister
told the Ambassador he was aware of the problems posed by the
CFO and her Russian masters in Moscow. He noted that he had
raised similar concerns at an earlier stage when he met
Russian authorities in Irkutsk in January.


8. (C) The Ambassador underscored the need to move forward on
all the MCC projects. MCC has clearly defined schedules and
targets that must be met. He noted that the U.S. side has
attempted to keep the Russians informed and offered to meet
as often as necessary, but ultimately the Mongolian side
cannot let MCC implementation slow because of Russian
foot-dragging. The PM said that dealing with the Russians
would be "difficult"; they do not understand the entire
situation, but he would work on it. He predicted that
satisfying the Russians was going to become a "big issue"
moving forward. The bottom line is that UBTZ is in a
"catastrophic position" right now financially and some
"unpopular" decisions are going to have to be taken. He said
he would doubtless have to raise UBTZ when he meets the
Russians, including PM Putin, later this month in Moscow. (As
former Mongolian Ambassador to Russia, Bayar is very well
knownA in Moscow to the leadership.)


9. (C) On the other of the two MCC projects that were facing
delays at the moment, the PM reassured the Ambassador that
the key condition that would allow the land registry project
to move forward would be met this week. An office building
would be provided to allow land registry staff to do their
jobs in servicing to up to 75,000 households in the
Ulaanbaatar area. Under the terms of the MCC compact, the
government was supposed to have provided the office space a
year ago.

Upcoming Schedule
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10. (U) The Ambassador outlined the upcoming bilateral
calendar, including CBRGI political talks set for April 2-3
and TIFA economic talks for later. To the Ambassador's
request that the Prime Minister meet with DAS John Norris
when in country for the CBRGI, Bayar said he welcomed the
opportunity. The Ambassador described the upcoming Gobi Wolf
Disaster Preparedness exercise at the end of March in
Ulaanbaatar that the two sides were working on. He said he
welcomed Foreign Minister Batbold's plans to visit
Washington, probably in June. It would be a good opportunity
for the Foreign Minister to meet people in the new
administration.


MINTON